In the weeks leading up to today's Budget, Labour expended much of its energies building on public and media hostility to forecast tax relief for the so-called rich. By any lights it succeeded in gazumping the Government in the pre-budget war of words.
But with his surprise announcement today that those with the average income will have a top marginal tax rate of 17.5% - in contrast to the 33% of 18 months ago - English pulled the rug out from under Labour's strategists. Far from tinkering at the edges or relying on ill-judged platitudes about the benefits of trickle-down, the Government outlined a comprehensive tax package that endeavours to provide an across the board benefit, not least for middle earners.
More may have been done to deal with opportunistic use of loss attributing companies, and there will be those who will be critical of the relatively gentle treatment of residential property investors given the harsher options available. However, the steps taken were rational and measured.
The package seemed to catch Labour flat-footed, with leader Phil Goff responding with a speech that had the hallmarks of being written last week. Focussing on the wasted opportunity for Government to provide a budget for all instead of the few, it was a discordant response that will have left at least some listeners wondering if the Labour leader was up to the job of thinking on his feet and making a political meal of what he had just been served up with.
Cementing what had to be a solid political win for the Government, English delivered the good news that New Zealand will leave deficits behind in seven years instead of 10 with net government debt peaking at 27.4% of GDP in 2014/15.
It was a hard act to follow. Whatever the analysis of the next few days reveals, English and the National-led Government can count Budget 2010 as measured, substantive and future focussed.
Changes to the tax system
The Government is introducing a tax package aimed at attracting and retaining skilled workers in New Zealand and encouraging productive investment – in short, the Government wants the tax system to incentivise working and saving.
From 1 October 2010 all personal income tax rates will reduce (with the thresholds remaining the same) and GST will increase from 12.5% to 15%. The new personal tax rates will be:
- 10.5% on income under $14,000 (currently 12.5%);
- 17.5% on income from $14,001 to $48,000 (currently 21%);
- 30% on income between $48,001 and $70,000 (currently 33%); and
- the top tax rate will be 33%, on income over $70,000 (currently 38%).
Taking into account income tax cuts and the GST rise, those on the average income of $46,000 will gain around $12 per week.
From the 2011/2012 tax year (1 April to 31 March) company tax rates will be reduced to 28% (currently 30%). Tax rates for other investment vehicles that are currently aligned to the company tax rate will also reduce to 28%. This will affect the top tax rate for PIEs, unit trusts and superannuation schemes. The tax rate for KiwiSaver accounts will be reduced from an earlier date of 1 October 2010.
The Tax Working Group recommended aligning the top personal, trust and company tax rates. The Budget aligns the new top personal tax rate with the trust tax rate (at 33%), which is seen as the most important single measure to improve the integrity of the tax system. However these rates are still higher than the new company tax rate of 28% and the Government has taken advice that this 5% gap is not wide enough to require further measures to be taken.
For the government financial year (1 July 2010 to 30 June 2011), the tax package will cost the Government $2.920 billion, while the increase in GST will mean $2.040 billion more revenue. Once other gains are counted, such as the $135 million of extra revenue from the rise in tobacco excise tax, the total tax package has a net cost to the Government of $460 million, which is just 0.65% of the total Crown expenditure of $70.7 billion.
The Government is also broadening the tax base by making changes to the taxation of property investments:
- From the 2011/2012 tax year LAQCs and QCs will become flow-through entities for tax purposes, meaning that profits could be taxed at the new top personal tax rate of 33% rather than at the company rate. At this stage is seems that losses can still be set off against taxable income (except for the purposes of Working For Families). In other words, losses are not being ring-fenced. An issues paper is being released today discussing the implementation of these changes.
- From the 2011/2012 tax year there will be a zero depreciation rate for buildings expected to last 50 years or more, on the assumption that such buildings do not in fact depreciate in value. The 20% depreciation rate for new assets will not apply to assets purchased after 20 May 2010. These changes were recommended by the Tax Working Group.
In his address to open Parliament in February this year, John Key only ruled out a "comprehensive" capital gains tax, however this qualification proved unnecessary (at least at this stage) as there is no capital gains tax proposal in the Budget. There is also no risk free rate of return for residential property investments and no land tax, which were recommended by the Tax Working Group but definitively ruled out by the Prime Minister.
The tax rate for trustee income will remain at 33% to align with the new top personal tax rate, reducing the incentives to shelter income in trusts. Working For Families rules will also be tightened so that people cannot claim investment losses against their taxable income in order to qualify for Working For Families tax relief.
The thin capitalisation rules will be changed by lowering the safe harbour threshold to 60% (from 75%), as recommended by the Tax Working Group.
IRD has been given $4.4 million to spend educating the public on their new tax obligations. An extra $11.5 million is also being committed to auditing taxpayers, with Bill English suggesting that every extra $1 spent on enforcement will gain $5 in tax revenue.
Since the 2009 Budget was released just less than a year ago, the forecasts for government spending and for the economy have significantly improved. There will be a faster exit from the recession and less impact on the Government’s books:
Forecast |
2009 Budget predicted |
2010 Budget now predicts |
Government spending |
Deficits predicted for… |
10 years (from 2009) |
7 years (from 2009) |
Size of deficits |
2010: $7.7B
2011: $9.3B
2012: $9.6B
2013: $8.4B |
2010: $6.9B
2011: $8.6B
2012: $5.4B
2013: $4.4B |
Net government debt peaking at… |
35.9% of GDP in 2016/17 |
27.4% of GDP in 2014/15 |
The economy |
Change in real GDP (production measure) |
2009: -0.9%
2010: -1.7%
2011: 1.8%
2012: 2.9%
2013: 4.0% |
2009: -1.4% (actual)
2010: -0.3%
2011: 3.2%
2012: 3.1%
2013: 2.9% |
Unemployment |
2009: 5.0%
2010: 7.5%
2011: 7.5%
2012: 6.3%
2013: 5.1% |
2009: 5.0% (actual)
2010: 7.1%
2011: 6.2%
2012: 5.5%
2013: 5.1% |
With National having broadly set its agenda for spending in last year's Budget, the focus of today's Budget was very much tax. Most of the new spending initiatives were announced before the Budget. Today's big announcements include:
- a further $2.1 billion for health, including a further $1.4 billion for DHBs over the next four years; and
- a further $1.6 billion for education over four years.
The Government's stated key drivers for stronger economic performance and key activities in these areas are as follows:
- Better regulatory environment for businesses – much regulatory reform is underway and there is more to come, including the introduction of the Productivity Commission, the new Financial Markets Authority and further reform to the Resource Management Act. The Securities Commission is benefiting from $1.23 million of capital expenditure as it takes on a greater role and begins work towards becoming the new Financial Markets Authority. $6.5 million is allocated to implement the new financial advisers regime and $3.2 million to implement the new anti money laundering regime.
- Science, innovation and trade - as announced prior to the Budget, an additional $321 million will be spent on research, science and technology over four years ($225 million is new funding and $96 million is reprioritised funding), lifting total annual spending in this area to $750 million. There will also be further boost to spending to encourage tourism and trade.
- Quality infrastructure –$1.5 billion will be spent on infrastructure projects this coming year, including broadband, KiwiRail and the Auckland metro rail project.
- Skills and education – an extra $1.6 billion will be spent on education over four years and, with "Mr Fix-It" Steven Joyce at the helm, the tertiary education sector will be undergoing reform.
- Improved public sector performance - the Government has allowed $1.1 billion of additional operating expenditure for the State sector (with $0.8 billion going to health, education and science and innovation) and a further $1.8 billion has been cut from "low quality spending" to be reallocated over the next four years.
Tax – the tax reform package is planned to encourage more productivity.
Extensive investment in KiwiRail freight venture announced
In a pre-budget announcement, the Government has committed $750 million in a three year package aimed at reinforcing KiwiRail's core freight business. The package, Transport Minister Steven Joyce says, will be the first step in support of the estimated $4.6 billion "KiwiRail Turnaround Plan" designed at making the rail freight venture sustainable within a decade.
The investment will be split, with an initial tranche of $250 million to be committed in Thursday's budget, and another $500 million to be added in the next two years. The Minister stressed that the investment package will be dependent on KiwiRail meeting the government's stringent performance-based measures.
Investment in the core business of KiwiRail, however, could come at the cost of several minor routes. Unless links in the Hawkes' Bay, Wairarapa, Taranaki, and in Northland can demonstrate economic viability, each may face "mothballing".
With the Minister suggesting that long-term freight traffic could double by 2040, improved investment in core rail infrastructure and rolling stock will ensure that KiwiRail is well placed to take advantage of the resulting revenue opportunities.
New leaky homes package announced
Building and Construction Minister Maurice Williamson has detailed a new Government proposal which aims to finally provide an efficient and accessible solution to victims of the "leaky homes" saga. Key features of the voluntary proposal, which could be available as early as 2011, are:
- Government and local authorities will each fund up to 25% of a homeowner's agreed repair costs with the homeowners themselves funding the remainder;
- loan guarantees obtained by homeowners pursuant to the proposal will be underwritten by the government, provided bank lending criteria are met;
- the proposal will supplement current dispute and litigation processes. In particular, homeowners who already have a weather tight claim with the Department of Building and Housing will still be able to apply;
- the 10 year statutory limitation period on bringing a claim will remain in place, with homeowners encouraged to apply for a weather tight claim in order to "stop the clock";
- homeowners who elect to participate will, however, be precluded from pursuing legal recourse against either local authorities or the Crown in relation to their claim; and
- homeowners will retain the option to pursue builders, developers, and other potentially liable parties for further recourse.
Details of the final package will be finalised in consultation with participating local authorities who have until 31 May 2010 to opt in. The proposal will also be discussed with major retail banks, with several having already signalled their willingness to participate. The Government, the Minister indicated, is anticipating the package will cost close to $1 billion over the next five years.
Hamilton City Council (Parana Park) Land Vesting Bill
Type of Bill: Local
Member in charge: David Bennett
This Bill would vest Parana Park in the Hamilton City Council as a recreation reserve subject to the provisions of the Reserves Act 1977.
Bills To Select Committee
Courts and Criminal Matters Bill
New Zealand Public Health and Disability Amendment Bill
Open for submissions
Bill |
Select Committee |
Submissions close (2010) |
Report due (2010) |
Copyright (Infringing File Sharing) Amendment Bill |
Commerce |
17 June |
22 October |
Electoral (Disqualification of Convicted Prisoners) Amendment Bill |
Law and Order |
11 June |
21 October |
Electoral (Finance Reform and Advance Voting) Amendment Bill |
Electoral Legislation |
17 June |
6 November |
Electoral Referendum Bill |
Electoral Legislation |
10 June |
22 October |
Employment Relations (Rest Breaks and Meal Breaks) Amendment Bill |
Transport and Industrial Relations |
11 June |
29 October |
Employment Relations (Workers' Secret Ballot for Strikes) Amendment Bill |
Transport and Industrial Relations |
27 May |
21 October |
Local Government Act 2002 Amendment Bill |
Local Government and Environment |
18 June |
4 November |
Television New Zealand Amendment Bill |
Commerce |
17 July |
29 October |
Submissions not yet called
Courts and Criminal Matters Bill
Land Transport (Driver Licensing) Amendment Bill
Marine Reserves (Consultation with Stakeholders) Amendment Bill
New Zealand Public Health and Disability Amendment Bill
Submissions closed
Bill |
Select Committee |
Report due (2010) |
Arms Amendment Bill (No 3) |
Law and Order |
26 November |
Child and Family Protection Bill |
Justice and Electoral |
11 August |
Christ's College (Canterbury) Amendment Bill |
Government Administration |
17 September |
Courts (Remote Participation) Bill |
Justice and Electoral |
31 May |
Education (Freedom of Association) Amendment Bill |
Education and Science |
30 September |
Electricity Industry Bill (see also SOP 121) |
Finance and Expenditure |
15 June |
Fair Trading (Soliciting on Behalf of Charities) Amendment Bill |
Commerce |
9 June |
Financial Service Providers (Pre-Implementation Adjustments) Bill |
Commerce |
14 June |
Franklin District Council (Contribution to Funding of Museums) Amendment Bill |
Local Government and Environment |
29 October |
Human Assisted Reproductive Technology (Storage) Amendment Bill |
Health |
8 June |
Insurance (Prudential Supervision) Bill |
Finance and Expenditure |
8 June |
Limitation Bill |
Justice and Electoral |
5 July |
Local Government (Auckland Law Reform) Bill |
Auckland Governance Legislation |
24 May |
Marine Reserves Bill |
Local Government and Environment |
30 December |
Prisoners' and Victims' Claims (Expiry and Application Dates) Amendment Bill |
Justice and Electoral |
1 June |
Public Works (Offer Back of and Compensation for Acquired Land) Amendment Bill |
Local Government and Environment |
17 June |
Sale and Supply of Liquor and Liquor Enforcement Bill |
Justice and Electoral |
30 June |
Sale of Liquor (Objections to Applications) Amendment Bill |
Social Services |
30 June |
Search and Surveillance Bill |
Justice and Electoral |
29 October |
Securities Trustees and Statutory Supervisors Bill |
Commerce |
24 September |
Social Assistance (Future Focus) Bill |
Social Services |
30 July |
Sustainable Biofuel Bill |
Local Government and Environment |
29 July |
Tariff (Malaysia Free Trade Agreement) Amendment Bill |
Foreign Affairs, Defence and Trade |
15 June |
Trans-Tasman Proceedings Bill |
Justice and Electoral |
29 July |
Bills Awaiting Second Reading
Bills that have recently been reported back to the House from a Select Committee are in bold and the Select Committee reports on these Bills are linked.
Animal Welfare Amendment Bill
Antarctica (Environmental Protection: Liability Annex) Amendment Bill
Aquaculture Legislation Amendment Bill (No 2)
Carter Observatory Act Repeal Bill
Children, Young Persons, and Their Families Amendment Bill (No 6)
Dog Control Amendment Bill (No 2)
Electricity (Continuance of Supply) Amendment Bill
Inquiries Bill
Māori Trustee and Māori Development Amendment Bill
Motor Vehicle Sales Amendment Bill
Ngāti Apa (North Island) Claims Settlement Bill
Oaths Modernisation Bill
Patent Attorneys Bill
Patents Bill
Privacy (Cross-border Information) Amendment Bill
Private Security Personnel and Private Investigators Bill
Public Health Bill
Radio New Zealand Amendment Bill
Rail Network Bill
Regulatory Responsibility Bill
Reserves and Other Lands Disposal Bill
Statutes Amendment Bill
Student Loan Scheme (Exemptions and Miscellaneous Provisions) Amendment Bill
Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Bill (Report of the Finance and Expenditure Committee)
Therapeutic Products and Medicines Bill
Trade (Safeguard Measures) Bill
Trade Marks (International Treaties and Enforcement) Amendment Bill
Trustee Amendment Bill
Whanganui Iwi (Wanganui (Kaitoke) Prison and Northern Part of Wanganui Forest) On-account Settlement Bill
Bills Awaiting Third Reading
Cultural Property (Protection in Armed Conflict) Bill
Gambling Amendment Bill (No 2)
Infrastructure Bill
Residential Tenancies Amendment Bill
Sentencing and Parole Reform Bill
Education Amendment Bill
Electoral (Administration) Amendment Bill
Education Amendment Act 2010
This Act amends the Education Act 1989 so as to identify individuals teaching without registration, and to reduce compliance costs relating to Police vetting of those who have unsupervised access to students at schools.
As this is a special Budget edition of Watching Brief, there are further Select Committee meetings this week which have not been included in the following summary.
Foreign Affairs Defence and Trade Committee
The Committee has been hearing evidence on its briefing from the New Zealand Institute of International Affairs, and a petition from Hon Chris Carter.
Justice and Electoral Committee
The Committee has been hearing submissions on the Trans-Tasman Proceedings Bill, Courts (Remote Participation) Bill, and the Prisoners' and Victims' Claims (Expiry and Application Dates) Amendment Bill.
Local Government and Environment
The Committee has been hearing evidence on the Report from the Parliamentary Commissioner for the Environment on How clean is New Zealand? Measuring and reporting on the health of our environment, and the Report from the Parliamentary Commissioner for the Environment on Stockton revisited: The mine and the regulatory minefield.
Māori Affairs Committee
The Committee has been hearing submissions on its inquiry into the tobacco industry in Aotearoa and the consequences of tobacco use for Māori. Several key points emerged from submitters:
- that the marketing strategies in the tobacco industry are reproachful;
- that tobacco has a disproportionately negative effect on the Māori population in terms of health, culture and economics;
- that there is essentially no benefit for Māori to be found in tobacco;
- that there should be an increase in tax and decrease in supply of tobacco; and
- that there should be greater provision of and subsidisation of cessation programmes.
Social Services Committee
The Committee has been hearing submissions on the Social Assistance (Future Focus) Bill. Submitters raised concerns with the introduction of part-time work tests for solo parents on the DPB with children over six years of age and for some sickness beneficiaries. The Human Rights Commission and the New Zealand Law Society also informed the Committee that the Bill, and the Social Security Act which it amends, are discriminatory under the New Zealand Bill of Rights Act.
Commerce Commission releases revised draft credit fees guidelines
The Commerce Commission has released a revised draft of the guidelines concerning establishment (s 42), credit (s 44), and default (s 44) fees under the Credit Contracts and Consumer Finance Act 2003. The guidelines aim to clarify which costs the Commission thinks can be reasonably recovered within the ambit of each of the three types of fee. With a number of credit fees cases currently in litigation, the Commission have also indicated a willingness to accept further guidance from the Courts. This is explicitly recognised with the incorporation in regard to credit and default fees of a requirement that the fee comply with "reasonable standards of commercial practice". Not defined under the Act, the Commission has recognised that the application of the phrase will be a matter for the Courts to determine. The draft guidelines are available here.
Legislative review for private schools
Associate Education Minister Heather Roy has announced that the Government will be modernising the legislative regime which regulates private schooling. Private schools account for approximately 4 percent of the total number of schools in New Zealand and approximately 31,000 students. The Associate Minister's announcement comes in response to the Law Commission releasing a report which has argued for extensive modernisation of the law in the area. Some recommendations by the Law Commission include introducing more stringent sanctions for schools breaching the law, with more of a focus on child welfare, and clarification of the application of the Education Act 1989.
Who |
What |
By when… (2010) |
Biosecurity New Zealand |
Draft Import Health Standard for vessel biofouling |
10 June |
Draft Code of Welfare for Goats |
11 June |
Department of Building and Housing |
Regulations to support the new Unit Titles Act 2010 |
10 June |
Commerce Commission |
Mobile termination access services |
19 May |
Department of Conservation |
Use of the Henderson Valley for education and recreation activities |
14 June |
Basking shark protection |
16 June |
Electricity Commission |
Review of the undesirable trading situation (UTS) provisions in the Electricity Rules and the Regulations |
28 May |
Ministry of Fisheries |
In-season increase of the FLA 3 Total Allowable Catch (TAC) |
28 May |
The decision criteria used to help allocate Ministry of Fisheries resources |
28 May |
Draft National Fisheries Plan for deepwater and middle-depth fisheries |
11 June |
Customary regulations for the Southern Titi/Muttonbird Islands |
16 June |
Review of Challenger Area Commercial Fishing Regulation 11 |
16 June |
Management options for basking sharks to give effect to New Zealand’s international obligations |
16 June |
Return of kina to the sea |
16 June |
Food Standards Australia New Zealand |
Residue limits for certain agricultural and veterinary chemicals |
4 June |
Nutrient reference values (NRVs) in the Australia New Zealand Food Standards Code |
30 July |
Inland Revenue Department |
Acceptance of late objections to assessments or decisions under section 92(2) of the Child Support Act 1991 |
30 June |
Economic depreciation rate for equestrian arenas |
30 June |
Department of Labour |
Code of Practice for the Design, Manufacture, Supply, Safe Operation, Maintenance and Inspection of Cranes |
10 June |
Standards New Zealand |
Buried corrugated metal structures |
28 May |
Managing risk in sport and recreation |
2 June |
High visibility safety garments |
10 June |
Safety of information technology equipment |
23 July |
Who |
What |
By when… (2010) |
Department of Conservation |
Tongariro National Park Management Plan |
11 June |
Kauri National Park proposal |
tbc |
Draft Guidelines for Aircraft Access for Canterbury Conservancy |
Ongoing |
Ministry of Economic Development |
Review of Schedule 4 of the Crown Minerals Act 1991 |
26 May (extended) |
Electricity Commission |
Settlement of Islanded Embedded Generation |
21 May |
Under-frequency Event Causer Determination |
21 May |
Review of urgent rule amendments relating to instantaneous reserve dispatch improvements |
28 May |
Environmental Risk Management Authority |
Improving the Hazardous Substances and New Organisms (Personnel Qualifications) Regulations 2001 |
21 May |
Draft Cosmetic Products Group Standard |
31 May |
New Zealand Food Safety Authority |
Draft amendments to post-mortem examination of lamb (hands-off lamb examination) and implementation procedure |
21 May |
Food Standards Australia New Zealand |
Food derived from insect-protected soybean |
19 May |
Lipase derived from Aspergillus niger as a processing aid (enzyme) |
19 May |
Ministry of Health |
Proposal to ban tobacco retail displays |
21 May |
Inland Revenue Department |
Interest deductibility - borrowing to replace and repay amounts invested in an income earning activity or business |
21 May |
Imaging of electronic storage media |
4 June |
Allowing a zero percent tax rate for non-residents investing in a PIE |
4 June |
Maritime New Zealand |
Maritime operator safety system |
2 July |
Standards New Zealand |
Plastics piping systems for soil and waste discharge |
18 May |
Electrical installations - Patient areas |
19 May |
Guide for managing risk in not-for-profit organizations |
21 May |
Approval and test specification - General requirements for electrical equipment |
9 July |
Safety requirements for deep fat fryers, frying pans and similar appliances |
9 July |
Safety requirements for vacuum cleaners and water-suction cleaning appliances |
9 July |
Safety requirements for refrigerating appliances, ice-cream appliances and ice-makers |
9 July |
Safety requirements for appliances for skin exposure to ultraviolet and infrared radiation |
9 July |
Safety requirements for commercial refrigerating appliances with an incorporated or remote refrigerant condensing unit or compressor |
9 July |
Safety requirements for battery chargers |
9 July |
Safety requirements for room heaters |
9 July |
Safety requirements for instantaneous water heaters |
9 July |
Safety requirements for pumps |
9 July |
New Zealand Transport Agency |
Draft Land Transport Rule: Traffic Control Devices Amendment |
19 May |
