2014 Budget Announcement

Budget 2014 - A Calculating Budget?

In an election year, clearly there is a temptation for the incumbent Government to use the Budget as a tool to buy them votes.  Announcements in a Budget that lean towards social policy and spending are sometimes then seen as having ulterior motives.

Leading up to Budget 2014, the Government has continually stated the 2014 Budget would not be designed to buy them votes.  Was that in fact the case, or did they end up slipping in a few sweeteners to help get them across the line at voting time?

Budget Highlights for Businesses

Below are key proposals outlined in the 2014 Budget.

Loss-making start-up companies

Following on from the announcement in Budget 2013, loss-making start-up companies will be able to cash out all or part of their tax losses from R&D expenditure.

Black hole expenditure

All businesses will be allowed tax deductibility for R&D "black hole" expenditure that is currently neither deductible nor able to be depreciated.  This measure was also announced in Budget 2013.

Tax Compliance

The Budget also provides Inland Revenue with an additional $132 million over five years to bolster tax compliance and for chasing up unfiled returns. This funding is expected to generate a gross increase in Crown revenue of almost $300 million over five years.

Cheque Duty

Cheque duty will be abolished from 1 July 2014.

ACC

Budget 2014 indicates ACC is on track to provide further levy reductions of around $480 million in 2015/16. Final decisions on the levies will be made after public consultation by ACC. Depending on the outcome of this consultation, the average levy for a private motor vehicle could fall by around $130 a year from 1 July 2015.

Duties and Tariffs on Imported Building Materials

A Productivity Commission inquiry into housing affordability found building materials for a typical modest family home in New Zealand are 30 per cent higher than in Australia.  Duties and tariffs currently apply to most of the materials used to build a standard house.  Budget 2014 temporarily removes these duties and tariffs to increase competition and improve housing affordability. This is expected to save around $3,500 on the construction of a standard New Zealand home.

New Zealand Trade and Enterprise

The Budget includes funding of $69 million over four years, including $14 million of reprioritised funding, to expand New Zealand Trade and Enterprise's presence in China, South America and the Middle East, and to help 200 more New Zealand firms break into overseas markets.

Centres of Research Excellence

The Budget provides an additional $53 million over four years to establish another three Centres of Research Excellence, bringing the total number to 10.  This includes a Centre focusing on Māori research.

The Budget also provides an additional $57 million over four years for contestable research in science and innovation.

So how does the Budget stack up?

Clearly there are sweeteners in this Budget, particularly in relation to the measures aimed at families. There are also clearly some similarities with policies Labour have been touting in recent months.  The Government has seemingly cherry picked those that have been getting the most traction and made these their own.

Given where NZ is currently at, the Government has a lot it can be happy about.  The economy is strong, particularly compared to our Australian neighbours whose Budget announcements yesterday were are far cry from the announcements made in the NZ Budget today.  In addition forecasts project rising surpluses in the next 4 years and, on the back of economy growth, a reduction in NZ's net debt.

These attributes are encouraging for NZ businesses. We have certainly seen an increase in activity over recent months due in part to this increased business confidence. 

Overall this Budget seems to again be a prudent one.  It delivers a range of good news for NZ businesses, with increased spending in areas that will ultimately assist the economy and NZ businesses to grow in the coming years.

For our full Budget summary please click here.

If you have any questions, please contact the Knowledge Shop consultants at solutions@knowledgeshop.co.nz or the tax team direct:

Phil Barlow
Tax Director
T + 64 9 414 5444
E phil.barlow@hayesknight.co.nz

Shelley-ann Brinkley
Associate - Tax Consulting
T +64 9 414 5444
E shelley-ann.brinkley@hayesknight.co.nz