New Zealand Budget Update 2024

How will this government’s budget affect you, your business and the economy?

Finance Minister Nicola Willis announced this government’s first full Budget today, setting out the plan to rebuild the economy, ease the cost of living crisis, deliver better healthcare and education services and restore law and order. So how does this budget affect you, your business and the economy?

Here are some key takeaways from it:

Tax relief for the squeezed middle in line with the National Party tax plan.
Targeted investments in public services including a $16.68 billion multi-year funding boost for health services, $2.93 billion for education and $2.92 billion to restore law and order.
Enduring savings of $23 billion over four years to responsibly fund tax relief and provide an additional boost to priority frontline services.
A $7 billion boost to capital funding, via a top-up to the multi-year Capital Allowance to invest in the infrastructure needed for future growth and resilience.
Fiscal discipline to get back to surplus and lower government debt.

Overall, the 2024 Budget appears to be a balanced attempt to address immediate economic challenges while laying the groundwork for sustainable growth and improved public services. Its emphasis on tax relief, critical service funding, educational reforms and fiscal responsibility suggests a comprehensive approach to managing the country’s resources and priorities. The effectiveness of these measures will depend on their execution and the broader economic context in which they are implemented.

The sections below detail the key initiatives made in the Budget, covering the spending and savings measures across a wide range of industries.

Tax relief

The Government is implementing significant tax reforms in the Budget to provide tax relief and ease the cost of living. Key changes include increasing personal income tax thresholds, expanding eligibility for the independent earner tax credit, increasing the in-work tax credit, and introducing a new FamilyBoost payment. Most of these changes will be effective from 31 July 2024.

Changes to Personal Income Tax (PIT) Thresholds

From 31 July 2024, New Zealand’s personal income tax (PIT) thresholds will increase. This adjustment is intended to reduce the income tax burden on individuals, as wage growth over time has caused more people to fall into higher tax brackets. This is the first significant change in personal income tax since 2010, aside from a new top threshold introduced in 2021. The maximum annual benefit for taxpayers under the threshold changes is $1,043 (or $20 per week).

Current vs. New Tax Brackets:

Current Brackets ($)	New Brackets ($)	Tax Rate (%)
0 – 14,000	0 – 15,600	10.50%
14,001 – 48,000	15,601 – 53,500	17.50%
48,001 – 70,000	53,501 – 78,100	30%
70,001 – 180,000	78,101 – 180,000	33%
180,001+	180,001+	39%

*For information on how the new tax brackets will benefit you, please visit the tax calculator: budget.govt.nz/taxcalculator

Independent Earner Tax Credit (IETC)

The upper limit of eligibility for the Independent Earner Tax Credit (IETC) is being extended from $48,000 to $70,000 per annum to provide additional financial support to more New Zealanders. The IETC is a tax credit aimed at individuals who are in paid work but do not receive Working for Families, main benefits or superannuation. The IETC offers a tax credit of up to $10 per week, which eligible individuals can receive either during the year through their tax code or as a lump sum at the end of the tax year.

In-Work Tax Credit (IWTC)

The In-Work Tax Credit (IWTC) will be increased by up to $50 per fortnight to provide enhanced financial support to approximately 160,000 low-to-middle-income working families with dependent children. This increase, equivalent to an additional $1,300 annually per family, aims to alleviate the financial burden on families by helping them manage living costs. The IWTC is designed to assist families in paid work, with the additional credit gradually reducing as family income rises to ensure targeted support.

FamilyBoost

The new FamilyBoost payment, set to begin on 1 July 2024, aims to assist approximately 100,000 low-to-middle-income families with the costs of early childhood education (ECE) for children aged five and under. Eligible families earning under $180,000 per annum can receive a partial reimbursement of up to 25% of their ECE fees, capped at $150 per fortnight. This reimbursement will be made quarterly, with the first payments disbursed from October 2024. The FamilyBoost payment is designed to provide meaningful financial relief to families by reducing childcare costs, thereby supporting parents and caregivers in balancing work and family responsibilities.

Inland Revenue funding

Inland Revenue has been allocated an additional $116 million over four years ($29 million per annum) in funding for ‘greater investment in tax compliance’. This is anticipated to yield a net $150 million in additional tax revenue each year.

Education

In the 2024 budget, significant contributions have been made in the education sectors to ensure the provision of high-quality services and to respond to societal needs. Some key measures for the sector are:

$1.48 billion to build new schools and classrooms and to maintain and upgrade existing educational facilities.
$516.4 million is allocated to support schools and early childhood education providers.
$153.3 million has been specifically set aside to establish charter schools.
$67 million to support schools in implementing structured literacy approaches.
$477.6 million to continue the Healthy School Lunches programme for two years.

Healthcare

The Government announced a substantial contribution to the healthcare sector to deliver high quality healthcare to New Zealanders, with key measures for the sector being:

$3.44 billion allocated to improve the accessibility and efficiency of hospital and specialist services.
$2.12 billion aimed at strengthening primary care and public health services.
$1.77 billion to ensure continued access to necessary medications for New Zealanders by boosting budget to Pharmac.
$31.2m to provide free breast screening for women up to the age of 74.
$24 million for the Gumboot Friday initiative, which provides free mental health counselling to young New Zealanders.

The $5 prescription fees will be reinstated. However, prescriptions will stay free for individuals with Community Services Cards, people aged under 14 and people 65 and over.

Law and Order

The Government committed to cracking down on crime and keep communities safe with an additional $2.9 billion investment as part of the budget, with the main investments and initiatives in this area being:

$1.94 billion for hiring more frontline Corrections officers, providing more support to help offenders turn away from crime and increasing prison capacity through the expansion of Waikeria Prison.
$425 million to increase pay for frontline police officers and purchase new police vehicles.
$68.7 million to address youth offending, including the implementation of a military-style academy pilot.
$226.1 million to hire an additional 500 police officers and more operational support staff.

Other public services

Addition investment into other public services includes:

$570.7 million allocated for Defence Force pay and projects, including upgrades to vehicles, helicopters and infrastructure.
$1.1 billion dedicated to ensuring disabled people have access to essential services, equipment and support.
$140 million to provide an additional 1,500 social housing units through community housing providers with delivery phased from 1 July 2025 onwards.
$48.7 million to support the Te Matatini national festival and promote kapa haka across the regions.

Infrastructure for growth

Budget 2024 lays the foundations for a better performing infrastructure system and includes the following:

$4.1 billion of Crown funding for the National Land Transport Fund (a $1 billion increase to the amount previously signalled) to accelerate priority projects including the Roads of National Significance.
$2.68 billion in roads, rail and public transport (including investment in the 17 Roads of National Significance,
$939.3m over four years to repair roads damaged during Cyclone Gabrielle, the Auckland floods and other North Island weather events and $200 million to support KiwiRail to carry out maintenance and renewals on the national rail network).
$1.48 billion for new school and kura property construction and improvements.
$1.2 billion for the new Regional Infrastructure Fund, of which $900 million is capital, to ‘invest in resilience infrastructure and regional projects that support economic growth’.
$5 million for the creation of the National Infrastructure Agency.
$92.2million for National’s replacement for the Resource Management Act 1991 reforms.

Economic and Fiscal outlook

The economic indicators show a mixed bag for the Government. Treasury is forecasting the economy to contract by 0.2% in real GDP terms in the year to June 2024 but grow by 1.75% in the year to June 2025.

The Government is optimistic about inflation as the Consumer Price Index (CPI) has been revised downwards. CPI inflation is set to be 3.4% in the year to June 2024, 2.2% in the year to June 2025 and 2% in the year to June 2026.

Unemployment is forecast to continue rising to 4.9% in June 2024 and to reach 5.22% in June 2025.

Core Crown tax revenue is projected to be 28.8% of GDP in 2024-25, while Core Crown expenditure is projected to be 33.5%. Net debt per cent of GDP is projected to be 20.9%. Spending as a percentage of the economy is expected to rise to 33.5% before falling to 31.1% in 2028. The deficit forecast for the year ended 30 June 2025 is expected to be $13.4 billion.

The Government expects to borrow an extra $12 billion over the next four years over and above its previous borrowing plans and has delayed its projected return to surplus by a year to June 2028. Net core Crown debt will also continue to rise from $155 billion to $209 billion by 2028.

Conclusion

The New Zealand 2024 Budget reflects a concerted effort by the Coalition Government to address key economic and social challenges.

The Budget’s focus on tax relief is a strategic move to stimulate the economy by increasing disposable income for New Zealanders. This approach is intended to counteract high inflation and boost consumer spending, which can drive economic growth. The Finance Minister said the tax cuts were fully funded through savings and revenue initiatives and would not add to inflation pressure. However, the success of this strategy will depend on its implementation and the overall economic environment.

The Budget underscores the Government’s commitment to prudent financial management. By criticising the previous government’s economic policies and focusing on reducing wasteful expenditure, the current administration aims to restore fiscal stability. This approach, if successful, could enhance public trust and ensure sustainable financial health for the country.

While specific details on infrastructure investments are limited, the Government’s intention to invest in key public services is promising. Effective allocation in this area can improve community wellbeing and support economic productivity. The impact of these investments will need to be evaluated over time as more details emerge.

While the Government’s efforts to balance the cost-of-living crisis are commendable, more could have been done to alleviate the pressures faced by small and medium enterprises (SMEs) – the backbone of New Zealand’s economy. Furthermore, the Budget did not elaborate on significant new investments in the technology and innovation sectors. In an increasingly digital world, enhancing technological infrastructure and supporting innovation is crucial for economic growth and competitiveness. Funding for research and development, tech start-ups and digital infrastructure upgrades would be beneficial.

There is no doubt that the country’s SMEs are up against an unprecedented number of challenges as they grapple with the repercussions of a global recession and the lingering effects of the COVID-19 pandemic. These include a lack of access to finance, economic uncertainty, skills shortages and an increasing regulatory burden.

Managing the cost of living crisis for individuals is critical, but so too is fostering a thriving business environment.

Small and medium-sized businesses account for 97% of all businesses in New Zealand, employing over 679,000 individuals and contributing more than a quarter to our gross domestic product, according to the New Zealand Ministry of Foreign Affairs and Trade.

As these businesses struggle to cope with the current recession, there was an expectation for the Government to allocate resources to SMEs and introduce policies that directly address the barriers to growth and sustainability for these businesses.

A reintroduction of initiatives like low-interest loans and grants similar to the Business Finance Grant Scheme, which was concluded on 30 June 2021, could prove to be a lifeline for businesses in these challenging times. Additionally, bolstering venture capital initiatives, expanding apprenticeship and internship opportunities and simplifying regulatory processes could all help nurture business growth. The introduction of these policies would be an investment in the future of our businesses, creating a conducive environment for SMEs to thrive while also helping New Zealand’s economy take a positive step forward.

View our insights page