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2016 Budget Announcement

The No Surprise Budget - 26 May 2016

Reading through the various documents that were released yesterday during Budget 2016, nothing particularly new jumps out to surprise me.

We have a Public Infrastructure package of $2.1b where $857m of that is allocated to replacing Inland Revenue's tax administration system.  In 2013 the Government had already signed off a spend in the vicinity of $1b on a new tax administration system.  This funding is therefore nothing new.  The package does however also include a significant spend, $883m, on new schools and classrooms that are clearly needed to cope with the continuing growth of the population and inbound migration.

Education gets a further boost of $397m funding for early childhood, and funding for high needs students of $42m.  Anyone with children at school will know there has historically been a lack of funding in this area and schools have often found it hard to resource this.

Health is also a big benefactor of the Budget with $2.2b allocated towards various health initiatives including more funding for elective surgery and a new National bowel screening programme.

Given the amount of recent media interest in the property market and lack of housing, there is relatively little set aside to assist in bringing this back into line.  There are however a lot of things that influence this and in reality it is not a quick fix situation.  Social and emergency housing has been allocated $258m which again seems to be in response to recent media scrutiny of the plight of some people.  Will the $100m to free up underutilised Crown land in Auckland help? A cynic would say this is unlikely given the influx of new migrants.

As with most Budgets, high on taxpayers' priorities is the area of Justice; $356m has been given to Corrections to reduce reoffending (again perhaps as a result of recent high profile cases!), $299m to Policing, and $208m to Justice and the Courts to ensure the justice system better caters for victims of crime.   Unfortunately, it is often the victims that end up the forgotten part of the equation and hopefully this funding will be put to good use.

Little "new" changes have been announced in relation to tax.  As part of the Government's support for businesses they have again announced a $187m SME-friendly tax package. These include:

  • A reform of provisional tax, with a new pay-as-you-go option allowing small businesses to pay tax as they earn income.
  • Use-of-money interest will be eliminated or reduced for the vast majority of taxpayers.
  • Contractors will be able to choose a withholding tax rate that suits their own circumstances.
  • The ongoing 1 per cent monthly late-payment penalty will be scrapped from 1 April 2017 for new debt - although immediate penalties and interest charges will continue.

These tax friendly measures are a welcome relief for businesses and will hopefully go some way to help reduce compliance costs.

Overall, under the current helm, the Government has continued down the pathway of previous Budgets with some restraint and the overall desire to reduce net debt.

The question will be, will there be room for tax cuts next year, just in time for the next Election?...

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

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