Introduction
Budget 2018 build’s on their initial “100-Day” Plan and prioritise 5 key areas:
- Rebuilding critical public services;
- Promoting economic development and supporting the regions;
- Action on child poverty, housing and homelessness;
- Enhancing and protecting New Zealand’s natural resources; and
- Enriching New Zealand’s cultural identity.
December’s “Mini Budget”
In December, the Government delivered what was termed their “Mini Budget”. Here they announced some of their flagship reforms, namely:
- Delivery of a new families package;
- Progressive minimum wage increases to $20 per hour by 2021;
- Paid parental leave extension from 18 to 22 weeks, then to 26 weeks by 2020;
- Implementation of the “KiwiBuild” programme;
- Restarting payments into the NZ Superannuation Fund;
- Introduction of the Child Poverty Reduction Bill.
Restoring Tax Fairness
Tax was not a major part of Budget 2018. However, the Minister of Finance made mention that Budget 2018 begins to restore tax fairness. Particular mention was made of:
- The Tax Working Group working to create a fairer tax system;
- Ring-fencing of rental losses;
- Extending the existing “Bright-Line” Test for residential property investment to 5 years; and
- “Amazon” Tax.
Tax
There was little in the way of tax announcements in Budget 2018. The biggest tax announcement was in relation to a new research and development tax credit regime (effective from 1 April 2019). This is covered in more detail below.
The other major tax announcements in Budget 2018 were:
- $31.4 million of extra funding to the IRD (over the next 4 years) to enforce the filing of outstanding company tax returns (this is estimated to derive an additional $183 million of tax revenue over this period); and
- Changes to the bloodstock tax rules for the New Zealand racing industry.
It is anticipated that no major tax changes would be proposed until the Tax Working Group have finished their work. The Tax Working Group are due to release their interim report in September 2018.
Rebuilding Public Services
Health
Budget 2018 introduced the largest injection into the health sector in ten years. The key initiatives that this funding is allocated to are as follows:
- District Health Boards (DHBs) receive $13.2 million in funding to boost core services, extending free GP visits to children 14-years and under, and lowering cost of primary care for the elderly
- $68 million allocated for National Mental Health Services
- $783 million for governance and oversight, including supporting equitable pay and workforce training
- $1.2 million has been allocated to capital investment, including maintenance of current services
Families Package
Replacement of Working for Families (“WFF”) tax credits with the intention to increase the number of eligible families. The investment into the Families Package confirms commitment to key initiatives, including those like increasing the minimum wage, which have already come into effect.
Reinstatement of Independent Earner Tax Credit (“IETC”): Budget 2017 saw the repeal of the IETC, which is being brought back in with Budget 2018 in its current form.
Best Start and extended paid parental leave: from 1 July 2018, $3,120 per year for all families in the first year of a child’s life.
$443 million has been allocated for Winter Energy Payments (“WEP”). A payment of $450 per year for single people or $700 per year for a couple and those with dependent children.
Justice & At-Risk Families
Budget 2018 reflects a change of focus to prevention rather than punishment with allocations to prevention and resolution services and community service organisations.
Education
Budget 2018 confirmed the $355 million allocated to this initiative alongside a further $601 million allocated for student allowances. Funding for primary and secondary school education has a particular focus on supporting teachers, youth mental health initiatives as well as initiatives to support English as a Second Language speakers. Funds have also been allocated to tertiary institutes in Christchurch as part of the post-earthquake rebuild. A further $538 million was allocated to education services, particularly professional development in the school and early childhood education (ECE) sectors.
Economic Development
Economic Development
Public transport, employment and immigration were prominent topics in the months following last year’s election. Budget 2018 seeks to further enhance the Auckland City Rail Link and places a huge investment in KiwiRail. The following show key injections to economic development.
Infrastructure
The Provincial Growth Fund sets out to provide employability, growth and community interaction by allocating $1 billion to it.
Research & Development
Aims to encourage businesses to invest in growing the New Zealand economy through new innovations. The R&D tax incentive is a 12.5% non-refundable tax credit. It applies to businesses with eligible R&D spend over $160,000 and up to $120 million.
International Presence
With New Zealand’s increased international trade comes a $1 billion boost to continue to grow our connections around the globe. Enacting a new embassy in Stockholm as well as providing a significant boost to our response to climate change, particularly in the Pacific.
Restarting Superfund Payments
Budget 2018 confirmed restarting of government payments into New Zealand Super with $14.5 million allocated.
Child Poverty & Housing
Child poverty and housing are at the heart of the government’s priorities. Budget 2018 builds on the $5.5 billion investment made through the Families Package as part of the 100-Day Plan.
- Newly renamed Oranga Tamariki (Ministry for Children) receives $7.422 million
- Over $418 million is allocated as financial assistance for childcare, care of unsupported children and extraordinary care
- $58 million to support youth who are unable to live at home and young parents
The heavy investment in housing comes as no surprise in Budget 2018, which confirmed the following key initiatives:
- $493 million allocated for the KiwiBuild programme, with the aim of delivering new homes for first home buyers
- $103 million in HomeStart grants
- A further $39 million is allocated for regulation of health and safety in residential homes
Enhancing Natural Resources
Budget 2018 supports investment to improve the way our natural resources are managed. The aim is to enhance sustainability. Budget 2018 also reflects recent coalition initiatives on climate change with $619 million allocated to New Zealand emission units to the economy. There is also a $9.3 million increase funding for Ministry of Primary Industries (acknowledgement of recent biosecurity issues such as that with Mycoplasma bovis affecting the dairy industry).
Maori development, culture and civil defence have been included in the top priorities for this year’s budget with Labour hoping to enhance pride in New Zealand and offer further international presence through the arts.
Enriching Culture
Maori development, culture and civil defence have been included in the top priorities for this year’s budget with Labour hoping to enhance pride in New Zealand and offer further international presence through the arts.
Conclusion
There were very few surprises in Budget 2018. The Government’s key priorities centered around health, education, regional development and poverty reduction. Budget 2018 largely delivered on what was anticipated.
In terms of tax there were no major announcements. As noted the Tax Working Group are delivering their interim report in September this and we are keenly awaiting their conclusions on delivering a fairer tax system.
Please contact our office if you wish to discuss the Budget 2018 further.
Phone: 09 366 5000
Email: info@williambuck.co.nz
