The 2018 New Zealand Budget

The 2018 New Zealand Budget

 

Welcome to the first Budget for Finance Minister Grant Robertson.  Delivered with both seriousness and a lightness of touch that Mr Robertson is known for, the Labour Government presented its budget in Parliament on Thursday 17th May 2018. 

What we already know – its not news if you told us before

Just like his predecessors, major announcements have already been made.  First in the mini-budget on 14th December 2017, and some surprise announcements on 8th May 2018.  Foreign Affairs Minister Winston Peters announced a significant boost to New Zealand overseas aid in a pre-Budget speech of $714.2m over the next four years to expand New Zealand’s Official Development Assistance, and the Ministry of Foreign Affairs and Trade (MAFT) will receive an operational expenditure increase of $150.4m over the next four years, and an additional $40.3m in capital expenditure.  On 13th May Associate Education Minister Tracey Martin said the extra operating funding of $21.5m over four years is a significant increase on the previous Budget. Early intervention services will also receive an extra $272,000 capital to support the IT costs of additional staff.

Nevertheless, Mr Robertson stuck to his guns and maintained his self-imposed Budget Responsibility Rules.  He had already announced on 8th May that the Government’s accounts continued to perform slightly better-than-expected and higher than the Treasury forecast in December.  We point out at this stage that Treasury seems to under-predict the tax take every year, so nothing new here.

The Government has been under some pressure to deliver on its election promises, while balancing the books and having to back track on implantation dates for some new initiatives.  The Government has taken some stick for delaying the introduction of lower doctor’s visits, and less well known the Winter Warmer grants to beneficiaries and those on National Superannuation (which is being introduced over a two-year period, so that it will not be paid in full this winter). 

Foundations for the future and a surplus of $3b

 Health, education, housing and other critical public services receive overdue investments today, says Finance Minister Grant Robertson.  “Our public services have been underfunded for too long and there has been a failure to appropriately plan for the future.  That changes today,”

“Budget 2018 makes responsible investments for the future, while delivering a surplus of more than $3 billion and taking a responsible approach to debt reduction.

“We are committed to living within our means and having a buffer to deal with the risks and shocks that a small country like New Zealand inevitably faces.

“The Government’s plan is fully funded within the operating and capital allowances we have set for this and future Budgets. We have been able to increase the allowances slightly because economic growth is forecast to be stronger than was expected before the election, by cracking down on tax avoidance, by reprioritising spending to reflect the Coalition Government’s priorities and with our more balanced debt track.

“We are committed to being responsible – not just fiscally but socially and environmentally. This Government is preparing our country for the future by making sure its foundations are strong and sustainable,” says Grant Robertson.

Highlights of Budget 2018:

Health

  • Health receives a huge boost with $3.2 billion more in operating funding over the next four years and $850 m new capital – including $750 m to tackle some of hospitals’ most urgent building problems, the biggest capital injection in health in at least the last decade.
  • This Budget commits to free doctors’ visits for everyone under the age of 14 – an extra 56,000 of our young people from the current policy.  Extending very low-cost GP visits to all Community Services Card holders and extending the Card to all Housing New Zealand tenants and New Zealanders who receive an accommodation supplement or income-related rent subsidy.  This will make going to the GP cheaper by up to $30 for the 540,000 people eligible for the Card.
  • Elective surgery, maternity services, air ambulances and the National Bowel Screening Programme are among the health services receiving extra funding.

Education

  • New capital funding will build schools and hundreds of new classrooms.  Operating funding for education over the next four years increases by $1.6 billion to address rising demand, fund 1,500 more teachers and raise teacher-aide funding.  Early childhood education gets a $590.2 m operating boost over four years, benefiting over 200,000 children.  A total of $284 m goes to Learning Support to allow every child with special education needs and learning difficulties to better participate in school life.

Housing

  • Housing is boosted by more than $634 m in operating funds.  An increase in public housing by over 6,000 homes over the next four years, provide more transitional housing and help for the homeless and offer grants for insulation and heating.

“This Government is placing the wellbeing of people at the centre of all its work,” says Grant Robertson.

“We are also building strong foundations for a more productive and sustainable economy. Budget 2018 allocates $1 billion over four years to encourage business innovation through a research and development incentive. We are supporting and growing our regions through the $1 billion-per-year Provincial Growth Fund and investing $100 m into a Green Investment Fund to help our economy’s transition.

“We are promoting a progressive and inclusive trade agenda. Our tax system will be fairer and more balanced to encourage investment in the productive economy.

“This Government is looking ahead to the next 30 years. We are managing our economy responsibly and providing the critical public services we need to build foundations for our future,” says Grant Robertson.

Strong Government finances and a strong economy

Responsible decision-making and a strong economy will deliver a forecast $3.7 billion surplus in 2018/19, up from $3.1 billion forecast in the current year, says Finance Minister Grant Robertson. 

According to the Treasury forecasts presented in Budget 2018:

  • Economic growth is expected to average about 3 per cent per year over the next five years.
  • The unemployment rate is expected to drop to 4.1 per cent, which would be the lowest rate in 10 years.
  • Real wages are expected to grow each year, with average annual earnings rising to $71,000 by June 2022.
  • Inflation is expected to remain steady and stable at around 2 per cent.
  • The operating balance before gains and losses (OBEGAL) is expected to continue to improve, reaching a surplus of $7.3 billion (2.1 per cent of GDP) in 2021/22, from $3.1 billion (1.1 per cent of GDP) forecast for the current year to June 2018.
  • Net capital investment will total $41.8 billion in the years to 2021/22.
  • Net core Crown debt is forecast to fall to 19.1 per cent of GDP in 2021/22.

“Our plan will ensure productive, sustainable and inclusive growth. Our job as a responsible Government is to look 30 years ahead – not just three. We are planning for what New Zealanders will need,” says Grant Robertson.

“Growth is expected to peak at 3.6 per cent in the December 2019 quarter as the Government’s policies bolster the economy, residential and business investment picks up, and consumption growth remains solid.

 Announcements 17th May 2018 – and the Winners are …

So those were the highlights.  Below are other announcements (assume everything as being spent over 4 years unless it says otherwise) – and in no particular order:

  • Midwives - “Budget 2018 includes $103.6 m of new operating funding over the next four years to support community midwifery services, plus $9.0 m in 2017/18.  About half of that funding will go towards an 8.9 per cent ‘catch-up’ increase in fees for over 1,400 lead maternity carers says David Clark.
  • $2.2b for District Health Boards – it is unclear if this is included in the $3.2b for health noted above.
  • Police, emergency services and St John’s - funding has been allocated for boosting numbers, and communications.
  • Government ramps up drive to reduce child poverty - $7.9 m of operating funding over four years to establish a new Child Poverty Unit.  And a Child Wellbeing Unit will be funded by Oranga Tamariki.
  • Building houses to tackle the crisis - $234.4m in funding from the 2018 Budget, and Housing New Zealand borrowing up to $2.9m from third parties and investing a further $900m from its operational budget (these are on top of November 2017 budget announcements).
  • Healthier homes for more Kiwi families - grants from the Energy Efficiency and Conservation Authority, with $142.5 m in new operating funding.
  • Investing in our children - This Budget provides Oranga Tamariki $269.9 m to expand its services (although it appears this may be as high as $283.3m, but some of this may be existing funding).
  • Bloodstock tax rules to change - The Budget allows $4.8 m for tax deductions that can be claimed for the costs of high-quality horses acquired with the intention to breed.
  • One Billion Trees – the Budget allocates $1 billion to the Provincial Growth Fund across both operating and capital expenditure.
  • Research and development – $1.0 billion of operating expenditure to finance an R&D tax incentive, giving eligible businesses 12.5 cents back for every dollar they spend on R&D.  This funding will be available to all businesses spending more than $100,000 a year on R&D.
  • Investing in our rangatahi (younger generation and youth) – Budget 2018 sets aside $15.0 m of new operating funding to enhance education and employment outcomes for rangatahi.  The funding will focus especially on young people not in education, employment or training (NEETs), and will support Māori Wardens initiatives.
  • Youth employment training places double - an additional $26.8 m operating funding.
  • Protecting our workers from exploitation - $8.8 m of new operating funding for more labour inspectors and support staff and a new operating funding of $4.3 m to address cost pressures in frontline employment services administered by the Ministry of Business, Innovation and Employment, including the Labour Inspectorate and Employment Mediation Services. 
  • Protecting against migrant exploitation - An increase of $34.0 m of operating funding to enable Immigration New Zealand to employ an additional 29 staff to increase screening and assessment of air passengers and help identify exploitation risks early.  $20.9 m in operating funding in 2017/18, $98.9 m in operating funding over the following four years, and $12.5 m in capital funding to help meet cost and capability pressures on Immigration New Zealand as it transitions to a new visa operating model.   Plus $5.6 m of new operating funding to enable the Immigration Advisers Authority to target unlawful immigration advice.   These increases will be partially recovered from immigration fees and immigration levies.
  • New services to support refugees - $6.2 m of new operating funding over the next four years, plus $7.7 m of new capital, to build and operate two new accommodation blocks at the Mangere Refugee Resettlement Centre, Refugee and Protection Unit. This will help address cost pressures from an increase in asylum and protection claims, and alleviate housing-supply shortages for incoming quota refugees. New operating funding of $3.8 m over the next four years, plus $335,000 in 2017/18, has been allocated for this work.
  • Help for survivors of sexual abuse - $7.5 m of operating funding over four years for sexual abuse assessment and treatment services, co-funded by ACC, the Police and the Ministry of Health, and $2.0 m being allocated from Vote Justice to enable work to start on a dedicated government agent to transform the family and sexual violence system.
  • Support for youth justice and victims of crime - $41.5m for victims of crime, those at risk of family and sexual violence, and young people falling through the gaps of justice system will get the support they need from increased investment from Budget 2018, says Justice and Courts Minister Andrew Little.  A further $155.1m for the Court Systems, ICT and asset maintenance.
  • Cracking down on tax dodgers and introduce fairness - is expected to provide the Government with an extra $726.3 m of revenue.  These will be sourced from recovering outstanding company tax and the newly announced GST for overseas on-line suppliers.  The Budget gives Inland Revenue $31.3 m of operating spending for this recovery, which includes analysing potential improvements to tax compliance through 3rd party reporting and withholding taxes. 
  • Targeting drug smugglers – budgeted $58.1m.
  • The Cyber threat response – funding of $10.1m.
  • Stronger biosecurity - $9.3 m in new operating funding in Budget 2018 to improve our offshore biosecurity systems to better manage the risks posed by imports.  The Government has already put up $85 m new operating funding in 2017/18 for the frontline response to Mycoplasma bovis in partnership with the primary sector and committing a further $38m over two years.
  • Canterbury - the Coalition Government has delivered on its promise to make $300 m available to accelerate the Canterbury recovery, says Minister for Greater Christchurch Regeneration Megan Woods.     The Budget also provides $6.5 m operating funds and $1.5 m capital to establish an special insurance tribunal to resolve outstanding Earthquake Commission tribunal.
  • Science boost for key farm management tool – at a cost of $5.0m in research and implementation of environmentally friendly farming practices.
  • Sustainable Farming Fund - $15m to support more inspiring ideas in applied research and extension projects that deliver economic, environmental and social benefits for New Zealand, to add to last year’s fund contributions.
  • Backing Nature - $181.6 m in operational funding for conservation initiatives over the next four years and an extra $81.3 m in operating funds for predator control.
  • Resource Management Act oversight unit to be established - to oversee compliance with the Resource Management Act (RMA) and to improve consistency across councils with $3.1 m over four years being allocated for the unit; $1.7 m over the 2017/2019 years for the Ministry for the Environment to lead the next phase of investigation into sites contaminated with per- and poly-fluorinated alkyl substances (PFAS), mainly from the use of fire-fighting foam, and a total of $8.0 m of new operating funding over the two years to 2020 for the Environmental Protection Authority (EPA) to continue managing the environmental effects of activities, such as offshore mining and drilling and space debris, in the Exclusive Economic Zone and continental shelf.
  • Arts, culture and heritage - Heritage New Zealand new operating funding of $6.3m; and $23.3m for Manatū Taonga Ministry for Culture and Heritage; $2.6m New Zealand Music Commission and a one-off operating funding of $400,000 Armistice Day centenary.
  • Media and NZ’s digital economy -  wait for it … Budget 2018 sets aside $15.0 m operating funds in 2018/19 to implement any of the advisory group’s recommendations that the Coalition Government accepts this year.
  • Defence Force capability – “Budget 2018 provides a $367.7 m operating funding boost to the Defence and Veterans portfolios over the next four years, underpinned by an extra $324.1 m for the New Zealand Defence Forces’ operating budget. In addition, Budget 2018 provides $42.3 m in new capital funding for modernisation”.  We also count another $89m in other spending under this heading.
  • Māori Development focuses on housing, training and whenua - $37.0 m of new operational funding Māori Development to improve outcomes across a range of fronts.
  • Support for safe and healthy local communities - $3.0 m of new operating funding over the next two years to respond to problems identified in the first stage of a three-waters review this year.  The additional work is for policy advice and support, specialist advice and working with local government.  [FYI ‘three waters’ is drinking water, waste water and storm water]
  • Net-zero-emissions future, sustainable jobs and growth - $100.0 m of new capital funding for the Green Investment Fund, designed to encourage private-sector investment in high-value, low-carbon industries, clean tech and new jobs and an additional $14.0 m in new funding is provided over the next four years to help deliver on the Government’s commitments to address climate change.  [We think this is new funding and not included in any of the above other announcements]

There are a few more announcements but are starting to merge in the reading, or maybe it’s just there is so many of them!

Working Groups – nice work if you can get it

“I am opposed to Working Groups, but it would be dangerous to offer me the position” – to misquote Mark Twain.  The Press on 16th May 2018 reported that the Government had established 100 work or review groups and advisory panels since it took power 200 days ago.  While some may be short in tenure, it is somewhat concerning that there may be too much consultation and not enough doing.

“No New Taxes”

The Government is also under some criticism of when a tax is not a new tax.  George Bush Senior made a now infamous statement “Read my lips, No New Taxes” (18th August 1988).  Jacinda Ardern said almost the same thing during the electoral debates in 2017 (no new taxes, or at least not until after the 2020 election).  Here is our somewhat light-hearted look at what we think is a “new tax” and what is not.  But first, if a tax already exists, for example income tax, then bringing something into the net not previous caught is in fact not a “new tax”.  Just as limiting or prohibiting tax deductions against income is not a “new” tax but just tweaking with the existing rules.  We also suggest that levies, surcharges and excise taxes are not “new taxes”.

Not New

New

Increasing an existing tax, like raising GST from 15% to 17.5%

Introducing a tax on water bottling stations

Increasing a fuel levy in Auckland

Introducing a transfer tax on NZ share sales

Raising (or lowering) the income bands on what rate of tax is paid

Introducing a capital gains tax on sale of a business assets

Increasing the Bright-line test from 2 years to 5

Introducing a tourism bed charge at hotels and other tourist accommodation

Rolling the Bright-line test out to business land and farms (kind of new to that property, but technically not a new tax)

Bringing back Stamp duty and Estate duty (a bit old school, but definitively new to the current population)

Ringfencing losses from one activity to prevent being offset by other income (technically not a new tax, just what is not allowed as a deduction

Introducing a penalty tax (or levy) on assets not being used – the so-called ghost taxes

Prohibiting non-residents from buying residential land in New Zealand, except if purchased for resale (not a tax in itself, just a tweak to the Overseas Investment Act)

 

 

 

Posted: Thursday 17 May 2018