Remember in your youth, the annual Government Budget was a big event. Gone are the days of stocking up on booze, cigarettes and filling up the car, and everyone watching the TV address as each new round of tax increases were announced. It is pleasing to see that some things don't change that much - tobacco tax is increasing in January next year!
Our report is broken into parts: An overview of the Budget from the Minister of Finance; 5 key highlights; the Government's focus, our discussion on why personal tax cuts are off the table this year; detail of today's new announcements; details of announcements made in the past 6 weeks, and 5 key points the Government wishes to make known.
Overview of the Budget
Today the Minister of Finance, Bill English, has delivered his 8th budget. And in true modern style almost all key announcements have been well signalled over the last six weeks.
Treasury’s latest forecasts show rising surpluses and falling debt as the Government maintains its careful management of public spending, Finance Minister Bill English says. Treasury’s latest forecasts show the Government is on track to meet its target of reducing net government debt to around 20 per cent of GDP by 2020.
“The surplus target helped us turn the Government’s books around. Now our focus is shifting to debt repayment to ensure New Zealand is well placed to deal with future economic shocks or natural disasters.”
Some spending previously earmarked for Budget 2017 has been brought forward, so net new operating spending in Budget 2016 has increased to $1.6 billion per year. This recognises pressures from higher population growth, and opportunities to invest in core public services and economic initiatives.
As in previous years, Budget 2016 includes reprioritisation of lower-value spending. An additional $480 million per year of new spending has been funded by operating savings.
In addition, the Budget 2017 allowance has also been reduced by a further $400 million per year to help repay debt.
Net capital investment in infrastructure and other public assets is $1.4 billion – less than the $1.7 billion allowance set at the Half Year Update.
However, additional new capital spending will be funded from capital recycling within the Crown’s balance sheet. As a result, total new spending on capital in this year’s Budget is $2.6 billion.
“These changes reduce Budget allowances for new spending by $1.2 billion over the next five years, helping to further reduce debt while still investing in public services,” Mr English says.
“A higher allowance in Budget 2016 means the Government can invest in public services, addressing the long-term drivers of social dysfunction to reduce long-term spending pressures. Helping people make lasting improvements to their lives also drives long-term improvements in the Government’s books.”
Some highlights summarised today include:
- An additional $2.2 billion for health. For more lifesaving drugs, more elective surgeries, more disability support services, and to start the roll-out of a national bowel screening programme.
- A $2.1 billion public infrastructure package to invest in building new roads, schools and classrooms, and to support our thriving tourism sector.
- $761 million for an Innovative New Zealand package, which invests in science, skills, and regional economic development initiatives to help grow and diversify the economy.
- $652 million for a Social Investment package to help drive changes to help improve the lives of the most vulnerable New Zealanders.
- Close to $300 million for Police to reduce crime.
The Government’s Focus
The Government’s focus is to get debt down to around 20 per cent of GDP by 2020 while still growing the economy. The Government will do this by:
Investing in a more productive and competitive economy that delivers more jobs and higher wages for New Zealand families.
Investing in health, education, police and other public services to ensure they meet the needs of a growing population, and provide better support for vulnerable New Zealanders.
The spending allowances for Budget 2016 and Budget 2017 has been rearranged, having been previously set at $1 billion for Budget 2016, and $2.5 billion for Budget 2017. Some 2017 funding has been brought forward as a result, more applied to reduce the Government debt target for 2020, and a reprioritising within the Crown spending.
Prime Minister John Key puts it this way “It's not about spending more money, it's about doing things better.” The Budget has a focus on investing in a growing economy, supporting our most vulnerable people who need it most, and paying down debt.
The Government’s spending is driven largely by the tax take and having a lower than expected business growth and inflation also affects how much is available. Yet spending pressure continues as our population growth is higher than expected, creating pressure on public services and affordable accommodation, especially in Auckland.
Lower Personal tax rates?
Lowering income taxes remains a Government priority particularly around increasing where the marginal tax rates levels are set. The concern here is what is known as “bracket creep”. As a person’s average wage increases there is a risk they move into a higher bracket, but with no real wage increase after taking into account inflation.
But is there any justification for tax cuts and do they really offer anything more than tokenism? Let’s look at the real numbers and keep tax cuts in perspective. Raising the top marginal tax level to $75,000 puts $150 pa in the back pocket of a worker on or over that annual income. That’s only $2.88 per week, less than a pot of tea at your favourite café. Alternatively, increasing the lowest tier from $14,000 to $18,000 gives a tax reduction to the majority of workers of $300 pa, which at $5.76 a week will at least buy you a coffee at your favourite café, or at a pinch a 2 litre bottle of milk and a loaf of bread (unbranded) in your weekly shop.
But any tax relief remains off the table until New Zealand improves it’s productively and competitiveness on the world-wide stage. And we believe that the majority of taxpayers are prepared to give up an extra cup of tea or coffee a week if it will put more money into health and job creation. More jobs and higher wages will enable the Government to invest in health, education, public services and supporting the more vulnerable members of our society.
Lower Company tax rates?
No, nothing. We note that Australia has recently announced a lower company tax rate for those with under $2m turnover, to 28.5% (standard rate is 30%), with the qualifying threshold progressively increasing over the following years. The Australian Government have signalled the corporate tax rate will eventually drop to 25%, the transition over 11 years makes it “cake tomorrow”.
Announcements today (where possible we have excluded announcements already made as these are referred to further on in this paper).
- The Emissions Trading Scheme one-for-two subsidy introduced during the global financial crisis will be phased out. This will positively impact the operating balance by $356 million over the next four years.
- A $100 million Freshwater Improvement Fund will help clean up New Zealand’s rivers, lakes and aquifers over the next decade.
- An additional $16 million is provided to tackle wilding pines in the highest priority areas.
- The primary sector receives $70 million to help eliminate bovine tuberculosis.
Social Investment Package
A $652 million Social Investment package will help the most vulnerable New Zealanders by intervening early and investing in public services tailored to their needs. It includes:
- $200 million for a system-wide reform of services and support for vulnerable children and young people.
- $61 million to extend the Youth Service to 19-year old parents, and 18 and 19-year old job-seekers at risk of long-term welfare dependency.
- $50 million to reduce barriers to employment, including for people with complex health conditions who would otherwise spend significant time on a benefit.
- $43 million for schools to increase support for around 150,000 students most at risk of educational failure.
- $40 million for Whānau Ora to support around 2,500 more whānau and families in areas such as managing health and disability issues, improving financial literacy and reducing household debt.
- $36 million for healthy housing initiatives (as set out in the Housing section above).
- $20 million to support offenders when they leave prison.
The Budget provides extra funding for housing, including:
- $200 million for at least 750 more places for individuals and families with the most pressing housing needs, as well as meeting the costs of rising rents.
- $36 million to ensure more families live in warmer, drier and healthier homes.
- A further $100 million is provided to free up surplus Crown land for housing developments in Auckland. In addition, the Government will soon issue a National Policy Statement on Urban Development, to direct councils to allow more housing development.
A $2.1 billion infrastructure package continues the Government’s commitment to build a stronger, more productive economy. It includes:
- Education - $883 million to deliver 480 new classrooms, nine new schools, two school expansions and the relocation and rebuilding of three schools and a Kura. This includes $168 million for the Christchurch schools rebuild programme.
- Transport - $115 million for the Accelerated Regional Roading Programme for projects in Gisborne, Marlborough and Taranaki, as well as $190 million to support KiwiRail.
- Tourism - additional funding for tourism infrastructure. This includes $12 million to help communities build smaller-scale infrastructure projects, like restrooms and carparks.
- Inland Revenue - $857 million for Inland Revenue’s new tax administration system, replacing one that is a quarter of a century old.
Innovative New Zealand package
The $761 million Innovative New Zealand package will encourage entrepreneurship, skills and economic growth. It includes:
- A $411 million investment in science and innovation, taking the Government’s total science and innovation investment to $1.6 billion a year by 2019/20.
- $257 million in more tertiary education and apprenticeship programmes, particularly in science, engineering and agriculture.
- Regional economic development support of $94 million to unlock business opportunities and benefit regional communities.
The Government will invest $16.1 billion in health in 2016/17. Over the next four years, $2.2 billion will be provided for new health initiatives and to meet demand pressures. This includes:
- $1.6 billion for DHBs to invest in services, meet population growth and deliver better results.
- $169 million for disability support services.
- $96 million to provide more elective surgery.
- $73 million for primary health care. This includes extra support for the free doctors’ visits and prescriptions for under 13’s announced in Budget 2014.
- $39 million to start the roll out of a national bowel screening programme.
- $15 million to support air and road ambulance services.
- $12 million to increase support for primary care and social services to enable people to access mental health help earlier.
- $12 million to expand a successful programme which provides intensive alcohol and drug support for pregnant women.
- Tobacco excise duty will rise by 10 per cent on 1 January each year for the next four years.
The Government will invest $11 billion in early childhood, primary and secondary education in 2016/17. Together, they will receive an extra $1.4 billion over this year and the next four years, including:
- $397 million to meet growing demand for early childhood education and provide places for a further 14,000 children.
- $883 million for new school property (as covered in the Infrastructure package).
- $43 million for schools to target students most at risk of under-achieving, instead of an across-the-board increase in operations grants.
- $42 million for students with high and special educational needs.
- Support for around seven new Partnership Schools in 2018 and 2019.
Māori and Pasifika
- $40 million for Whānau Ora (as covered in the Social Investment package).
- $35 million for Te Reo Māori language initiatives.
- $6 million for Pacific peoples initiatives, such as helping young Pacific people in Auckland into work, education or training.
The Justice sector receives $837 million over the next four years, plus $56 million in 2015/16 to prevent crime, rehabilitate offenders and reduce reoffending. This includes:
- $299 million for Police over the next four years, which includes $49 million from a Budget 2015 contingency, primarily to meet wage increases.
- $208 million for a number of justice sector initiatives, including addressing family violence and ensuring the justice system better caters for victims of crime (see further in previous announcements below).
- $356 million for Corrections over the next four years to reduce reoffending and meet recent growth in the prison population.
This funding includes $12 million to manage offenders returning from overseas and $9 million to continue 24-hour GPS electronic monitoring for the highest risk offenders.
Fire Service and Civil Defence
- $6 million for the Ministry of Civil Defence and Emergency Management to ensure New Zealand is well prepared for future natural disasters.
Defence and security
- $301 million for the New Zealand Defence Force so it can concurrently undertake domestic, regional and international security tasks.
- $179 million for the New Zealand intelligence community to ensure it can provide essential intelligence and security services and remain effective in a rapidly-evolving environment.
- $12 million for the New Zealand Symphony Orchestra, Royal New Zealand Ballet and Te Matatini Kapa Haka Aotearoa.
- $41 million for the SuperGold card scheme to provide certainty for more than 670,000 cardholders across New Zealand.
Over the past six weeks the Government have already made budget allocation announcements. Here are some of them:
Taxation – reduction in compliance costs for Small Businesses
- As announced by the Prime Minister on 13 April a $187 million spend over four years.
See our previous blog on proposed changes, which covers simplification and compliance such as replacing Provisional Tax for SME’s with a new type of ‘pay as you go’ linked to accounting software packages; changes to withholding tax and reductions in penalties and interest (considered by the public as little more than usury charges).
Tourism: $45m over the next four years
- $12m over four years towards a new Regional Mid-sized Tourism Facilities Fund to help communities with small infrastructure projects that enhance visitor experiences and help them cope with growing numbers of tourists and independent travellers, such as Freedom Campers.
- $8m over four years in additional funding for Tourism New Zealand to target key growth markets.
- $25 million in additional funding over the next four years on expanding the New Zealand Cycle Trail, Nga Haerenga.
Training and Education: $39.3m spread over four years
- Extra teacher aides with $15.3 million funding increase providing for 1250 additional students to receive in-class support.
- An additional $9.6 million over four years for Māori and Pasifika Trades Training (MPTT).
- $14.4 million over four years for more apprenticeship training.
Industry: $11.5b over 2 years
- Rolling out ultra-fast broadband as part of an $11.5 billion capital investment programme over the next two years.
Science: $15m over 4 years to commercialise Kiwi hi-tech
“Encouraging the development of new export-oriented high-tech businesses is a key part of the innovation stream of the Government’s Business Growth Agenda,” says Stephen Joyce Minister of Science and Innovation.
- Funding for the Pre-Seed Accelerator Fund will increase by $12 million over four years, taking the Government’s total investment through the scheme to $8.3 million per year.
- In addition, funding for the development of new Accelerator programmes will be extended with new investment of $3 million over the next four years.
Housing: $53.7m over the next four years
- The Māori Housing Network operated by Te Puni Kōkiri is to receive a $12.6 million boost over the next four years (taking the total up to $17.5m pa).
- The Government will provide $41.1 million over the next four years in Budget 2016 for emergency housing and grants.
- The bulk of the $41.1 million will be used in two ways:
- The Ministry of Social Development will contract NGOs to provide about 3000 emergency housing places each year.
- A new emergency housing Special Needs Grant to support individuals and families with the cost of emergency housing for up to seven days if they are unable to access a contracted place.
Health – access to new medicines: $124m over four years
- An extra $39 million will be invested in the 2016/2017 year to enable Pharmac to provide more New Zealanders with access to new medicines, Health Minister Jonathan Coleman says.
- And an additional $11m pa into Pharmac’s DHB budget.
Health Research - $97m over four years
- In total a funding boost of $124 million over four years will mean that Pharmac can further increase access to new medicines.
- The Government will increase funding for health research by $97 million over the next four years, Science and Innovation Minister Steven Joyce and Health Minister Jonathan Coleman announced 17 May 2016.
“The annual amount available for health research through the Health Research Council will increase by 56 per cent over four years - from $77 million in 2015/16 to $120 million in 2019/20,” Mr Joyce says. [Editor’s note: this does not add to $97m]
Community – Support for Victims, and Prevention of, Sexual Violence: $46m over four years
- New frontline crisis response for victims – with a focus on trauma management, follow-up response, a new 24/7 national advice and support helpline, specialist callout support such as crisis counselling and advocacy services, and follow-up support.
- Harmful sexual behaviour services – to reduce offending and reoffending, assessment and treatment programmes.
- Services for male survivors of sexual abuse – additional support providing one-to-one peer and group support for male victims.
The largest pest control operation in New Zealand’s history will be launched this winter in response to a pest plague which threatens vulnerable native wildlife, Conservation Minister Maggie Barry announced.
- “Battle for our Birds 2016 will receive $20.7 million in new operating funding for 2015/16 [sic] from this month’s Budget, helping to fight back against an expected pest population boom caused by a heavy forest seeding, or mast.”
Cyber security: $22.2m over four years
- The Government will invest $20 million of operating funding over the next four years on a new national Computer Emergency Response Team (CERT) to combat cyber-attacks and cybercrime.
- And an additional $2.2 million of capital for set up.
High Performance Sport and Anti-doping - $20m over four years
- An investment of $16m four years to High Performance Sport NZ.
- An additional $4 million over four years for Drug Free Sport NZ.
Fire Services: $303m over five years
- $112 million of capital funding will be spent on moving to the new organisation “Fire and Emergency New Zealand” over four years, beginning in 2016/2017 year (to be repaid over 10 years).
- The remaining $191 million of operating funding over four years from 2017/2018 will be spent on new measures to address funding gaps in rural fire services, set up local committees to ensure community needs are well understood by the single fire organisation, and better support for New Zealand’s 12,000 fire volunteers.
Partial funding for these will come from increased fire levies by expanding insurance on “material damage” (not just fire damage) and third party motor vehicle insurance from July 2018.
5 Key points the Government want you to know
(direct quotes from their pre-budget email from 25th May)
- More than 200,000 jobs have been created over the past three years – that equates to around 180 new jobs every day.
- New Zealand has the third highest employment rate in the developed world.
- We’re on track for annual economic growth of about 3 per cent for the next few years.
- We’re also on track for rising surpluses and falling debt – we were one of the first developed countries to be back in surplus after the global financial crisis when we posted a surplus of $414 million last year.
- Budget 2016 contains $1.6 billion in new spending. We’ve already announced funding for more lifesaving drugs, emergency housing, and to support our thriving tourism sector.
Want to know more?
If you would like more details on these or other changes go to the Government’s website here. If you want more information from the National Government's website click here.
Want to know how these specific changes could affect your business? Then contact us.
Want to see previous Blogs by us? Then visit our website here.