Coming Tax Changes Will “Rebalance” Economy

March 25, 2011 New Zealand Taxation

BeehiveThe upcoming changes to the national tax system are expected to greatly improve the economy, and aid the country’s recovery from the recent Christchurch disaster and financial downturn.

Speaking in front of Parliament on March 25th the Finance Minister Bill English said that the upcoming changes to the tax system will help re-balance the economy, as the country faces its biggest budgetary deficit ever. The Finance Minister said that the changes are expected to improve conditions for businesses, encourage economic growth, while remaining tax neutral.

On April 1st a number of alterations will be carried out on the New Zealand tax system, including a cut to the corporate tax rate, from the current 30 percent to 28 percent. Unit trusts, life insurance policyholders and other some other savings vehicles will see their applicable tax rate drop by 2 percent to 28 percent. Landlords will no longer be able to claim depreciation on buildings with estimated lifespans exceeding 50 year. Loss Attributing Qualifying Companies will be abolished. The eligibility for Working for Families and the Community Services Cards will be tightened, now including family trust incomes into the means testing parameters.

Lowering the corporate income tax rate is expected to cost the government NZD 1.1 billion over the next four years. The loss will be offset by expenditure reductions and revenue increases of NZD 3 billion from all the other measures. Cumulatively, the Finance Minister descried the changes, saying, “…these measures help tilt the economy further towards savings, investment and exports and away from the unsustainable borrowing, consumption and over investment in housing of the past decade.”

Bill English also addressed the repeated call for a new levy to be instated to cover the arising cost of the Christchurch city rebuild. He acknowledged that the country will now be facing a historically high budget deficit, but ruled out a the recovery tax, saying, “…with regard to an earthquake levy for the kinds of numbers we are talking about with the Christchurch earthquake, there would have to be a pretty significant levy for quite a long time.”

Photo by Ewan-M