The responsible management of the economy continues to be the
focus for the government, highlighted by the delivery of another
A return to surplus by 2014/15 is still predicted, although this
is well within the margin of error, as well as a fall in the
unemployment rate to below 5% by 2015.
The delayed rebuild of Christchurch will be a cornerstone of the
growth in domestic activity and will contribute about one
percentage point to annual growth in each year from 2012 to
Apart from the focus on balancing the budget, there is a
limited amount of new targeted investment to improve New Zealand
innovation, including the establishment of an Advanced Technology
Institute, and a small increase in funding for science and
The most significant revenue moves are the increase in tobacco
excise by 10% in addition to the CPI increase each year for the
next 4 years and some changes to tighten the student loan rules,
including the elimination of the early repayment discount from 1
April 2013, and an information match between Inland Revenue and the
Customs Service for Student Loan borrowers in serious default,
which could cause some excitement at airports in the future.
There are limited tax changes
focussed on the targeting of loopholes, outdated regimes, and
Concern for this tax loophole for the well-off was raised by the
Government last year in a discussion paper that set out a method to
restrict the tax deductions taken by those who had high value
assets available for rent and, therefore, were partly used for
business purposes. Typically, owners would deduct costs
associated with owning the asset for the full year except when that
asset was actually used for private purposes. The
announced rules appear to be less restrictive than originally
proposed and will apportion deductions based on the actual business
use of the assets when compared to the total time the asset is used
for any purpose. This effectively removes the 'available for rent'
periods from the calculation. For example, if an asset is rented
for 40 days and used privately for 80 days during the year the
taxpayer will only be able to claim 33% of the expenses.
Further details as to the operation of these rules are not yet
available and we will issue a further update once these are
The low income rebate was originally introduced to balance the
effect of GST being introduced in1986, and will now be repealed
with effect from the 2012/13 tax year. However, if individuals are
currently claiming this via their tax code they will continue to
receive this through the PAYE system for the current
year. Interestingly, if this is claimed via an individual's
tax code via PAYE and they file a tax return (for example because
they have income not taxed at source) they will forfeit the benefit
of the credit for the 2012/13 tax year.
The tax credit for active income for children has been repealed
from the 2012/13 tax year. Essentially, children can no longer
file a tax return to receive a refund of tax deducted at source by
their employer. Going forward, if an employer deducts PAYE from
payments to children, the credit will not be available in respect
of that income. If they have active income of $2,340 or less
which is not subject to PAYE (e.g. casual baby sitting, lawn
mowing) then this income will be exempt.
This has been repealed with effect from the 2012/13 tax
year. It provided a credit of 33% of the amount paid for a
housekeeper or for childcare under specific circumstances up to a
maximum of $310 per annum. The Government considered this to be a
poorly targeted credit as only 11 per cent of claimants come from
the bottom 30 per cent of households.
The livestock changes were
originally announced as a part of Budget 2011 and an Issues Paper
was released on 18 August 2011. It was then announced on 28 March
2012 that elections to use the herd scheme will become irrevocable
from the date of that issue paper, 18 August 2011. The
announcement in Budget 2012 confirmed that the legislation to give
effect to this change will be included in the Budget legislation,
and the specific detail will be introduced in the next Tax Bill.
This is expected to prevent a fall in revenue of $184 million over
the next 4 years.
The backdating of the changes in
the election rules to 18 August 2011 will mean that farmers will be
unable to switch schemes for the 2012/13 year. The Government's
view was that the previous rules were allowing farmers to switch
between the two main livestock valuation methods to receive an
unfair tax advantage. Farmers were previously able to elect out of
the herd scheme at times when livestock values were high and obtain
a tax advantage. Elections to use the herd scheme will now be
irrevocable except when there is a change in farming operation due
to a fattening regime. A link to the fact sheet setting out
further details of the changes released on 28 March 2012 is here. Further detail is to follow later
this year so there may be some minor changes to what has already
The Government continues to increase funding to the Inland
Revenue, with an additional $78.4 million over the next 4 years.
This is intended to target the hidden economy, debt collection and
unfiled returns and is expected to generate an extra $345.4 million
of revenue over the 4 years to 2015/16. Whilst the expected return
of $4.40 per dollar spent is significant it illustrates the law of
diminishing returns compared to the return of $6.62 per dollar
spent over the 2010 and 2011 tax years. It is likely that Inland
Revenue have now picked off all the relatively easy targets and are
having to work harder to find additional revenue.
Automatic enrolment has been placed on the back burner and will
not be introduced in 2014/15 as originally planned, as this would
jeopardise the Government's target of returning to surplus.
This measure will be subject to public consultation at a later
date. The changes announced in the last year's budget will still
go ahead as planned when the employer and employee's contributions
will both increase to 3% from 1 April 2013.
Whilst not included in the budget, Inland Revenue have recently
signalled their intent to review the FBT exemptions in relation to
employee car parks and childcare provided on employer premises as
well as the wider issue of employees trading salary for allowances
that are not subject to tax. Whilst no firm decisions have yet
been made we expect there to be a tightening of the rules to be
announced later this year.