Economic concerns and financial pressures are the leading challenges for New Zealand business leaders right now, according to our April 2024 BDO Business Wellbeing Index. These leaders will be eagerly anticipating the upcoming Budget to see how the Government might address these issues.
When purse strings are tight, the Government will often look at a range of measures to help support businesses. These could include:
- Tax cuts to ease the pressure on living costs, which have already been signalled in this Budget.
- Providing clarity for business leaders around the latest economic forecasts and policy direction.
- Implementing social policies of benefit to the business sector, e.g. policies focused on immigration, retail crime or the environment.
New Zealand’s coalition Government will release its first annual Budget on 30 May, with an operating allowance of less than $3.5 billion. So what can we expect to be announced in support of business leaders? Below, we explore the policies the Government has confirmed will be detailed in this year’s Budget, along with other likely business-focused announcements. For more, stay tuned to our timely Budget Day coverage.
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BDO Budget Day coverage On the day, our expert BDO team will be ready to share timely insights and details of key expenditure items with you promptly after exiting the media lockup in Wellington. Tune in after 2:00 pm on Thursday 30 May to read our insights and learn how this year’s Budget will affect your business. Subscribe to our mailing list to be the first to hear about our Budget commentary. |
What to expect from Budget 2024
While Finance Minister Hon Nicola Willis has ruled out an austerity Budget, she has indicated that this year’s Budget will not be an instant fix, promising restraint rather than big spending.
The Government has said it will focus on “squeezed middle” New Zealanders, increasing income tax rate thresholds to “allow hard-working New Zealanders to keep more of what they earn, compensate for the impact of fiscal drag on average tax rates, and ensure there is a greater financial return from work,” as declared by Nicola Willis in her ‘Getting Back on Track’ pre-Budget address.
Key focus areas for Budget 2024
Prime Minister Christopher Luxon recently announced that the Government wants to focus on three main priorities in Budget 2024:
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Driving investment into key public services – for example, increase in spending on health, law and order, education and disability services.
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Giving low- and middle-income earners tax relief. The tax relief package is promised to increase the take-home income of 83% of New Zealanders over the age of 15 and 94% of households.
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Delivering enduring savings, and controlling spending, to ensure money is better spent on the front line while getting the Government’s books in order over time.
For New Zealand business owners and leaders grappling with high inflation, interest rates, and recessionary conditions, the above priorities should be welcomed by most. Businesses will also be looking for announcements that reduce red tape and make it easier to operate.
Pre-election tax promises
As part of National’s pre-election “Back Pocket Boost” tax policy, it promised the following changes to the tax system:
|
Proposed policy |
Status |
Details |
|
Adjustments to income tax brackets. |
Expected in Budget 2024 |
See the table below. |
|
Expansion of the independent earner tax credit. |
To be confirmed |
|
|
Introduction of the FamilyBoost childcare tax credit. |
Confirmed (pre-Budget) |
To begin from 1 July 2024.
|
|
Changes to Working for Families tax credits. |
Confirmed (pre-Budget) |
Family Tax credit rates and Best Start tax credit rates increased from 1 April 2024. |
|
Gradual increase in interest deductibility for residential rental properties. |
Confirmed (pre-Budget) |
Restored to 80% from 1 April 2024 to 31 March 2025, rising to 100% from 1 April 2025.
|
|
Decrease in the bright-line period to 2 years. |
Confirmed (pre-Budget) |
To begin from 1 July 2024. |
|
Fuel tax changes. |
Confirmed (pre-Budget) |
No increases in fuel taxes over the current term of government; Auckland Regional Fuel Tax removed from 30 June 2024. |
|
Scrapping the listed services “app tax” GST rules. |
Cancelled |
App tax introduced from 1 April 2024. |
The cost of these tax changes was to be funded in part by the following:
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Introduction of a foreign buyer tax - this has since been scrapped.
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Removal of depreciation rate for non-residential buildings - now introduced.
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Online gambling tax changes - set to be introduced from 1 July 2024.
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Immigration levies - no announcement on this yet.
Spotlight on tax cuts
National promised tax cuts in its pre-election campaign. The promise was to adjust the income tax brackets as follows:
|
Proposed tax thresholds |
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|---|---|---|
|
Previous threshold |
Proposed new threshold |
Tax rate |
|
Up to $14,000 |
Up to $15,600 |
10.5% |
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$14,001-$48,000 |
$15,601-$53,500 |
17.5% |
|
$48,001-$70,000 |
$53,501-$78,100 |
30% |
|
$70,001-$180,000 |
$78,101-$180,000 |
33% |
|
>$180,000 |
>$180,000 |
39% |
Nicola Willis has already confirmed the 2024 Budget will include adjustments to the income tax brackets. Other than the introduction of the 39% rate, these were last changed in 2010.
The exact form of the promised tax cuts is unclear, with some commentators advising caution. The OECD recently recommended that the Government continue to “steadily reduce the fiscal deficit to reach a budget balance” and that any tax cuts should be fully funded by offsetting revenue and spending measures. Meanwhile, in the National-ACT coalition agreement, the two parties agreed to ensure that “the concepts of ACT’s income tax policy are considered as a pathway to delivering National’s promised tax relief, subject to no earner being worse off than they would be under National’s plan”.
BDO’s view on Budget 2024
Time will tell what’s in the Budget and the extent to which this will benefit businesses.
Of course, a range of forward-thinking tax policies of benefit to the business sector could be considered by the Government. However, in the current climate, any additional changes that have a fiscal cost are unlikely to be palatable. We’ve also long moved away from significant tax changes being announced on Budget day. Other than urgent tax changes to protect the integrity of the tax system, major tax policy changes should follow the Generic Tax Policy Process to provide opportunities for public engagement throughout the different phases of the tax policy process.
In saying this, big-picture thinking around tax and economic measures to benefit the business sector could include:
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Reducing red tape and tax complexity for small-medium businesses.
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Dedicated small business support measures, as announced in the recent Australian Federal Budget (such as a small business debt helpline especially in the current environment).
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Reviewing the minimum threshold for GST, currently set at $60,000 annual turnover. Australia’s GST threshold is $75,000 and the UK recently increased its VAT threshold from £85,000 to £90,000.
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Committing to cross-party consensus on the tax roadmap for New Zealand beyond this Government term – whether that be on capital gains tax, wealth tax, foreign investment – with the aim of providing more certainty for the business sector longer-term.
For more Budget coverage, tune into BDO’s coverage on our dedicated Budget website section and our LinkedIn page for updates direct from Parliament on May 30. Subscribe to our mailing list to be the first to hear about our Budget commentary.