On May 1th the Tourism Industry Association New Zealand (TIA) called on Prime Minister John Key voice his concerns to the Prime Minister of Australia Julian Gillard regarding the recent increase to Australia’s high level of departure tax and its potential negative effect on the number of Australian tourist coming to New Zealand.

Last week the Australian government announced that from July 1st the departure tax charged on anyone leaving Australia would be raised from AUD 60 per person to AUD 55 per person, equivalent to a 17 percent hike.

The TIA is concerned that the increase will have a significant negative impact on the number of Australians who travel to New Zealand.

The spokeswoman for John Key said that the Prime Minister would raise the TIA’s concern in Australia “shortly”, but gave no specific date.

Commenting on the potential impact of the tax hike, Richard Llewellyn, a spokesperson for the Auckland International Airport, said that tourism taxes create a disincentive for travelers to go overseas and are damaging to the “…significant economic benefit that the visitor industry delivers to residents and businesses.”

During the 12 months ended March 2012 approximately 1.17 million Australians traveled to New Zealand for short-term holidays, and, according to the Ministry of Economic Development, each visitor spent nearly NZD 1 500 when visiting our country.

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On May 9th the University of Otago published new research which was commissioned by the Treasury of New Zealand in order to attain greater information on income movements across different demographics in the country. The authors of the research examined data collected in Statistics New Zealand’s annual Survey of Family, Income and Employment, to determine how the incomes of New Zealanders changed over the period between 2002 and 2009.

The research indicates that over the time period New Zealanders saw significant mobility in their incomes, both in terms of upward and downward movements. The most notable movements were seen amongst the highest and lowest earners, with only 24 percent of people who were in the lowest earnings deciles in 2002 were still there in 2009, and only 46 percent of individuals who were originally the top deciles remaining there over the entire 7 years.

The study found that the most likely people to be earning the lowest incomes in the country were youths, or individuals with low qualifications, solo parents and Maori.

The researchers suggested that the finding highlight the need for future economic policies to consider income mobility and also emphasize the importance of encouraging individuals to improve their economic situations. They added that it was ineffective to look exclusively at income inequality statistics in New Zealand, as taxpayers change demographics over time and their income levels shift accordingly.

The Treasury’s own report on the research can be read on the Treasury website.

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On May 8th the Treasury of New Zealand released the Financial Statements of the Government of New Zealand for the nine months ending March 31st 2012, showing that the total unconsolidated tax revenues for the period were NZD 1.404 billion, or 3.0 percent, below the the government’s own forecast, earlier published in the 2011 Pre-election Economic and Fiscal Update a few months ago.

The Treasury expects that the gap between the amount of taxes collected and the foretasted level will narrow to NZD 700 million within the next three months, and suggested that indicators have emerged that corporate tax collections will pick up in the next quarter, adding approximately NZD 400 million more to the total collections for this fiscal year.

It was noted that there were some decreases to total expenditures and total revenues due to timing variances, with both measures expected to pick up in the last three months of the fiscal year.

One of the reasons cited for the revenue shortfall was decreased collections of GST following the catastrophic Christchurch earthquake last year.

Commenting on the Statements, the Finance Minister Bill English said that the latest data shows that 2012 has been a difficult year for New Zealand, but the country will return to a budget surplus within three years.

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Late last week the Minister of Revenue Peter Dunne and the Associate Minister of Social Development Chester Borrows announced that the Inland Revenue Department and the Ministry of Social Development would soon begin sharing greater amounts of information about taxpayers.

Currently the government departments share information about taxpayers only upon individual inquiries, but, after May 31st both departments will have equal access to client data. will. Peter Dunne emphasized that both departments will maintain respect for client privacy, and information will only accessed when it is needed to prove entitlement of taxpayers receive payments from government funded subsidies.

Also commenting on the new rules, Chester Borrows explained that the new information sharing capabilities will help prevent benefit fraud by some taxpayers and minimize the occurrence technical errors by either department.

The Ministers’ announcement comes only one day after an Auckland woman was sentenced to seven month in prison for fraud which led to her to receive over NZD 68 000 in donation credits, Paid Parental Leave and Working for Families Tax Credits.

According to Chester Borrows, in 2011 over 658 people were successfully prosecuted for benefit fraud, which was estimated to have led to over NZD 22 million in illigitimate payment of government funds.

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Earlier this week, on May 2nd, the co-leader of the Maori Party Tariana Turia said that her party will continue to push for increases to excise taxes on cigarettes, saying that “…we know that excise has been the best way, to date, at preventing the uptake. It’s worked extremely well.” She suggested that the government should instate further hikes to taxes on cigarettes later this month.

Tariana Turia is pushing for New Zealand to become a smoke free country by 2025, and claims that raising excise taxes would be an appropriate step to reach the goal. However, she admitted that she currently has no indication of whether the government plans to announce another excise tax increase in the near future, saying “…I would like to be confident that there might be more, but I don’t know whether there’ll be a greater increase at all, that hasn’t been told to us.”

Commenting on the prospect of the hikes, the Prime Minister said, “…we’ve raised excise before, it’s been very successful in raising revenue and also in terms of reducing the numbers of people smoking, I think that’s been a good thing.” He acknowledged that the Maori Party has been campaigning for even further increases, but said that he would not reveal any news on the tax until the Budget announcement on May 24th.

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Following a meeting of the Cabinet on April 30th, the Prime Minister John Key confirmed that the government would stick to its goal of achieving a budgetary surplus by the end of the 2014 fiscal year. The Prime Minister’s words come only days after the Finance Minister Bill English announced that the projection for the government’s budget surplus in the 2014 fiscal year has been reduced from a NZD 370 million surplus to a NZD 640 million deficit.

The Prime Minister explained that all the Cabinet Ministers and their departments are currently investigating means of reducing their expenditures and boosting revenues further. However, John Key assured the New Zealand public that any new cost-cutting measures will not have a heavy negative impact on New Zealanders, saying “…I don’t think people should think that this Budget’s going to be a slash and burn exercise.” He explained the situation further, saying “…there will be some changes in there, and that’ll have some implications for some New Zealanders, but overall I think the balance is about right.”

John key acknowledged that reaching a surplus would now be an even more difficult task, but stated that the having a balanced budget was a government goal and it would be achieved if it was possible to do so.

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On April 26th the governor of the Reserve Bank of New Zealand Allan Bollard announced the results of the latest review of the Official Cash Rate (OCR), saying that the Bank has not found enough economic evidence to justify changing the rate, and the rate will be maintained at the level of 2.5 percent. The OCR has not been altered throughout the nine reviews already held since the rate was dropped to 2.5 percent in March 10th 2011.

Explaining the decision, Allan Bollard said that the Reserve Bank deems the current level of inflation in New Zealand to be economically acceptable and the growth of inflation is still within the Bank’s own target range.

The governor summarised the country’s current economic performance, saying that the domestic economy is showing signs of further growth. He also said that the Bank is seeing a pick up in the country’s housing market, which was forecasted earlier this year. The building construction sector is expected to pick up later in the year, as a greater number of rebuilding projects are launched in Christchurch.

Despite the generally positive economic situation in New Zealand, the governor said that the global economic outlook “remains of concern” because “…near-term indicators have moderated and financial market sentiment is still fragile.”

Commenting on the possibility of changing the OCR in 2012, the governor explained that if the New Zealand dollar maintains its currently high price and no major movements are seen across the other economic indicators, the Bank will need to “reassess the outlook for monetary policy settings.”

Economic experts are already predicting that the OCR will be altered near the end of the year in order to deal with the high value of the New Zealand dollar. According to AMP Capital Investors, the Reserve Bank will hike the OCR at the end of 2012 and continue to raise the rates throughout the next year before dropping the cash rate to below the current level of 2.5 percent.

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On April 23rd the Ministry of Health presented a working paper regarding taxation of cigarettes, in which the Ministry suggested that the government could increase the taxes on tobacco products to hike the price of cigarettes to NZD 60 by the end of next year, and instate a further 10 percent increase each year. If implemented, the move would see an average pack of cigarettes cost upwards of NZD 100 by the end of 2020.

According to the Ministry, such a large hike in taxes would make a significant positive contribution to the government’s own goal of eliminating the occurrence of smoking in the country by 2025.

The Prime Minister John Key has already spoken out against the suggestion, saying that the move could lead to people purchasing tobacco on the black market, circumventing the taxes altogether. The Prime Minister’s words were backed by the director of the anti-tobacco group ASH Ben Youdan, who said, “…if you are pushing prices up to $100 a pack I think it’s pretty inevitable that people would see it as an opportunity to undermine that and see it as an opportunity to sell tobacco illegally.”

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In a media statement released on April 23rd the Minister of Revenue Peter Dunne announced that the government will be looking at amending the GST system to allow foreign businesses to make claims for a refund for purchases they make from local businesses.

Under current regulations, foreign entities which do business in New Zealand are not able to claim GST refunds like a New Zealand company. Commenting on the rules, the Minister said that “…our GST system is a hurdle for non-resident companies looking to do business with New Zealand businesses.” He added that New Zealand was disadvantaged on the international market, as some foreign companies may choose to do business in countries with more favorable tax systems.

According to the Minister, the government is now investigating the feasibility of implementing a new GST registration system for foreign businesses, allowing international companies to receive GST refunds. The new system should be implemented by April 1 2014.

Commenting on the proposed change, the Minister suggested that “ …by removing GST as an impediment, this will help level the playing field and allow our businesses to compete for contracts internationally.”

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In a speech given at a conference of the New Zealand Association of Scientist on April 16th the leader of the Labour Party David Shearer confirmed his party’s stance towards science in New Zealand, saying that the country needs to foster more technological research through the use of targeted tax breaks and economic policies.

According to the Labour leader, the National government has “systematically made choices that I [David Shearer] believe have set science backwards.” He pointed to the removal of research and development tax credits, cutting of post-doctoral fellowship funding, and restructuring of the science sector.

He suggested that New Zealand’s future economic viability did not lie with the agricultural sector, saying “…there’s always going to be a ceiling to how much milk and beef you can take off a hectare of land. It’s not a matter of choosing agriculture or high-tech. It’s a matter of choosing both.” He elaborated further, saying that an economy based around high tech innovation will also produce more jobs, and help retain the country’s talent.

David Shearer called for tax credits to be reinstated on research and development activities, saying that the Labour party proposes that the tax break should be paid for by bringing agricultural admissions into the government’s emissions trading scheme as soon as possible. Earlier this month the government proposed delaying the implementation of ETS on agriculture until at least 2014.

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