The *yawn* budget
In case you missed it, yesterday was budget day. On a good day it can be difficult to get excited by a government budget, and it looks like yesterday wasn’t a good day. There were some tax cuts that were well telegraphed beforehand – more on these below, some cash for building new roads and some breadcrumbs for the regions in the form of increases in the Regional Infrastructure Fund. Sometimes, ‘less is more’, but in this case, it looks like less is just less.
Tax cuts
Let’s dive into the tax rates as this really is the centerpiece. These cuts are delivered by adjusting the brackets. The 10.5% bracket moves up from $0 – $14,000 to $0 -$15,600, the 17.5% bracket moves from $14,000 – $48,000 to $15,600 – $53,500and the 30% bracket moves from $48,000 – $70,000 to $53,501 – $78,100. The effect of this is that you will have a bigger proportion of income taxed at a lower rate.
How does this play out in the real world? If you receive NZ’s median income of$61,692.80, you will pay $1,319.50 less as a result of these changes. If your income is $78,100 or over, you will pay 1,042.50 less. If you want to know how this will affect you, check out the calculator from Treasury here.
Payroll providers are presently building this into their platforms and for those of you that we prepare individual tax returns for, we will take care of this in the background for you.
IRD investigations
A budget line item that hasn’t got as much attention: IRD investigations and recovery functions have both been allocated more money. And more money means more activity coming this way! Particularly, the investigation, audit and litigations budget is going from $106.2 million to $165.4 million. That is a significant increase! We haven’t brought it up for a while but historically IRD have recovered $6 for every $1 they spend on investigation activity, so expect to see more action here.
Lack of productivity
Perhaps more important than the tax changes and various very minor lolly scrambles, is what the budget failed to address: New Zealand’s woeful and worsening productivity. According to the OECD, we are in the 30th spot out of 40 countries measured for labour productivity levels. We are well below the OECD average. And according to Stats NZ, in the 2023 financial year, our productivity fell across the board.
To be fair to the present government, it’s not just them. Successive governments over decades have let this problem get worse. They have papered over our declining productivity by importing more people to artificially prop up NZ’s GDP, but that has brought its own challenges – not least of which is our lack of infrastructure and housing. Regrettably very few in Wellington seem to see this as a priority, indeed the current administration went so far as to close the Productivity Commission, so this doesn’t look like it will be reversing course anytime soon.
If we want to continue with a first world lifestyle (access to education, healthcare, support for elderly/unemployed, working utilities – you know, that sort of good stuff), then as a Nation, we need to be able to pay for it. And to do that, we need to be more productive. So next time you see a politician out pressing the flesh, ask them what they are going to do to turn the tide!