The New Zealand government released its 2011 budgetary plan on May 19th, revealing several changes to the country’s economic policies and new forecasts for the country. The release outlined the government’s primary goals of reducing spending, shrinking public debt, increasing national savings levels, and supporting the goal of a future financial surplus. The new budget was presented by the Finance Minister Bill English.

The Minister confirmed expectations that next year the budget deficit would reach NZD 16.7 billion, approximately 8.4 percent of the GDP. However, he suggested that through a series spending controls, the government would reach a surplus by 2015, one year earlier than previously forecasted. New Zealand’s net debt is now expected to peak at 29.6 percent of GDP in 2015, which is significantly lower than the previous estimate of 33 percent. Currently the government estimates that the debts will decline and be wholly paid off by 2024.

The recovery and rebuild of the earthquake stricken Christchurch region is a key priority in the new budget, with the government setting up a NZD 5.5 billion Canterbury Earthquake Recovery Fund. The new facility will be funded by sales of the to-be-instated Canterbury Earthquake Kiwi Bonds. Creation of the new equity offer will be subject to the National party’s reelection later this year.

The Kiwisaver system is also subject to significant changes. As of June 30th 2012, the government’s Member Tax Credit (MTC) contribution will be halved, with only 50 cent being paid out to every dollar contributed by savers. The MTC payments will be capped at NZD 521.43 per year. From April 1st 2012, the employer’s contribution to Kiwisaver will face Employer Superannuation Contribution Tax (ESTC), which will be applied at the employee’s marginal personal tax rate. From April 1st 2013, the minimum employee contribution rate will be raised from 2 percent to 3 percent. It is expected that the changes will cumulatively provide the government with NZD 2.6 billion in savings over the coming four years. Cost saving alterations will also be made to the national student loans scheme and the Working For Families system.

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On May 25th the New Zealand Business Council for Sustainable Development released the results of their post-Budget announcement survey. Among other findings, the results revealed that 47 percent of surveyed landlords intend to raise rents to compensate for any loss of profit from new taxation changes. Only 13 percent of landlords were undecided on the rates of rent they will charge. Among all survey respondents 69 percent of non-landlords believed that average rents would increase, and 65 percent of landlords expected to see an overall rise in rent.

In the 2010 New Zealand Budget, released on May 20th, fiscal changes were announced closing tax imbalances in the taxation of rental properties. Among other changes, depreciation deductions will no longer be granted on housing with an expected life exceeding 50 years.

Nearly half of landlords within the survey claimed that denying depreciation will directly cause them financial problems. Conversely, only 26 percent of New Zealanders believe that the changes will have such an impact on their well being. Of the surveyed landlords who intend to increase rents, 47 percent attributed the change primarily to the depreciation allowances alterations.

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On May 20th the New Zealand Government revealed its latest budget, introducing numerous personal income tax rate decreases, measures to close loopholes in the tax treatment of rental properties, and an unexpected cut to the level of corporate taxation. According to a poll conducted by New Zealand Taxation, nearly 60 percent of respondents claimed to be neutral in satisfaction regarding the tax changes, while over a quarter of survey takers said they were “Very Unsatisfied” with the Budgets. Additionally, 16 percent were “Very Satisfied” or “Mildly Satisfied” with the cumulative fiscal change package.

Phil O’Reilly, Business New Zealand Chief Executive, has been an outspoken supporter of the 2 percent decrease to corporate taxation and PIE levy rates, announced in the Budget. he claimed that the new rates will lead to competitive and higher-earning economy. Commenting on the fiscal package he said, “These tax decisions are targeted at the long term health of the economy. It is to be hoped that future budgets will continue this positive approach.” Although he went onto to ask what measures will be implemented next to ensure the competitiveness of New Zealand’s economy against the Australian market.

As a cumulative package, the new Budget has received general praise, with commentators lauding the numerous tax cuts. Although several commentators have claimed that the Budget is of greater benefit to high-income earners with little advancement for low-income New Zealanders. David Cunliffe, Finance Spokesperson for the National Party, commented further, saying, “When the rosy glow of Beehive spin wears off, New Zealanders will know they’ve been swindled.”

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On May 20th the New Zealand Government revealed its national budget for the year 2010. The latest budget aims to reduce the impact of last year’s recession while introducing a range of fiscal stimulus measures and providing a solid base with which the Government can maintain control of the nation’s economy.

The Budget announcement revealed a number of significant alterations to New Zealand’s tax system. As expected by most economists, the Government has confirmed that the Goods & Service Tax (GST) rate will be raised to 15 percent from the current rate of 12.5 percent.

The increase in GST is offset by decreases to personal income tax rates at all income levels. Taxpayers earning below NZD 14 000 (approx. USD 9 507) will face a tax rate of 10.5 percent, compared to the current rate of 12.5 percent. The tax rates levied on the NZD 14 001 to NZD 48 000 income bracket will be reduced by 2.5 percent to 17.5 percent. Marginal incomes between NZD 48 001 and NZD 70 000 will be taxed at 30 percent, 3 percent below the current rate. The top marginal rate, currently applied to incomes above NZD 70 000 (approx. USD 47 538), will experience the biggest reduction, falling from 38 percent to 33 percent. The drops in personal tax and rises in GST are intended to encourage taxpayers to lessen personal consumption and increase the national saving propensity. Both changes are scheduled to take effect on October 1st 2010. Government income support, student allowance payments and numerous other payouts are scheduled to increase by 2.02 percent to compensate for the increased GST.

To further encourage savings amongst New Zealanders, the Budget includes a 2 percent decreases to the tax rates levied on corporate incomes, top-marginal Portfolio Investment Entity (PIE) earnings, and tax rates on life insurance policy holders and widely-held savings vehicles. Effectively, the change will result in tax levies of only 28 percent for the three types of income. The reduced rates will be introduced in the 2011-2012 financial year for corporate rates and insurance rates, and on October 1st 2010 for PIEs.

In line with Government promises, changes have been outlined which aim to remove the currently existing tax bias towards misbalanced investment in rental properties. Applying from the start of the 2011 financial year, depreciation deductions will no longer be allowed for buildings with an estimated useful life exceeding 50 years. Additionally, the current Working for Families scheme will be altered to exclude investment losses (including rental property losses) from taxpayers’ entitlement calculations.

According to the Government, the costs of the tax reform package are fiscally neutral in the medium term. Although, the cumulative monetary cost over the first four years, including the Government’s estimated macro-economic benefit assumption, will be NZD 415 million (approx. USD 282 million).

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On May 17th John Key, Prime Minister of New Zealand, appeared in a television interview and made it clear that the upcoming budget will feature cuts to personal taxes across all levels, but with special emphasis on top-marginal rates. John Key’s comments led economist to believe that the anticipated increase in Goods and Service Tax (GST) will also be announced within the Budget, to offset the decreased tax personal tax revenues.

When questioned on the fairness of increased tax cuts for high earners, John Key claimed that the move was vital for the future economic situation of the country. According to the Prime Minister, it is important that efforts are made to retain the highest skilled workers in the nation, both for their large tax contribution and provided services. He summarized the intentions of the change, saying, “Part of what you are going to see on Thursday is a deliberate attempt to get people to say here and contribute to the economy.”

Overall, John Key stated that the Budget will be aimed at improving the economic growth of the entire nation. He said that it will also deliver increased benefits, opportunities and welfare for everyone in the economy.

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On March 22nd at a speech given at the Wellington Chamber of Commerce, Bill English, New Zealand Finance Minister, revealed that a further NZD 1.8 billion worth of public spending will be cut by the Government, in an effort to eradicate “lower quality government spending” and improve the national fiscal situation. The new cuts are slated to be executed in addition to the NZD 2 billion of spending decreases announced earlier.

The spending reductions are scheduled to occur throughout a four year time period and coincide with the introduction of a new Government-spending limit. Bill English indicated that some of the money that would be directed away from “low quality” spending would be transferred to “high priority” sectors. Indication was given that the health and education sector would see immediate benefits from the decision. Any unused funds would be utilized to lower New Zealand’s budget deficits in the next four years.

Indicating that similar spending cuts could occur in the foreseeable future, Bill English said, “…I think there will be a continuing sorting out of the public sector… there was a reduction of about 1500 [public sector] jobs in the last 12 months and I expect that process is likely to continue.” He also revealed that some public services could even be eradicated completely, though did not mention specific examples.
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On April 9th the New Zealand Government released its Financial Statements for the eight months ended February 28th 2010. The new statements show the Government’s operating deficit for the period to be NZD 4.49 billion, 11.2 percent below the 2009 Half Year Economic and Fiscal Update. The difference was attributed to lowered Government spending and a once-off payment to the Government from its structured financing legal settlements. An unexpected surge in retail sales caused also Goods and Service Tax (GST) collections to reach NZD 389 million, over 5.3 percent higher than projected. The positive results were partially offset by lowered Core Crown Tax Revenues which were reported to be NZD 32.6 billion, approximately 361 million below projections. Additionally, the Government reported Core Crown Revenues of only NZD 36.2 billion, nearly NZD 348 less than expected.

Bill English, New Zealand Finance Minister, applauded the overall results and the Government’s ongoing efforts to pursue positive fiscal results. The Minister said that the National-led Government has made it clear that the large increase seen in public spending over the previous five years were unsustainable and imposed too great an effort on tax payers. He continued on to say that the latest results are a product of the Government’s successful cutting of over NZD 2 billion worth of low quality spending. In the face of several years of upcoming deficits, the upcoming Budget release will mandate similar cutbacks in order to minimize the effects of future shortfalls. Indicating the possibility of similarly positive yearly fiscal results in the future, Bill English said, “We are working hard to get back into surplus and get the Government’s debt under control.”

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The changes to taxation brought about by the new budget have been passed through Parliament under the Taxation (Budget Tax Measures) Bill. It was introduced under urgency n the same day as the budget, the 28th of May, it passed and received Royal Assent the following day. The weekend and public holiday meant that it was only enacted on the following work day, the 2nd of June.

The Taxation (Budget Tax Measures) Bill repealed sections of the Taxation (Urgent Measures and
Annual Rates) Act 2008, which pertained to future cuts to personal taxation, as promised by the National Party during their election campaign.

The second section of the Taxation (Budget Tax Measures) Bill deals with the abolishment of the Kiwisaver mortgage diversion facility. Specifically, every section pertaining to the enactment of mortgage diversion now reads that to sign up one had to apply before the 1t of June, effectively rendering it an impossible task.

The new Government’s first Budget has been released amongst poor economic conditions and threats of credit rating downgrades. No particular surprises were featured, that have not been circulating over the previous weeks.

The promised personal tax cuts for 2010 and 2011 have been deferred, with no set date. To some analyst this has suggested these cuts be in perpetual deference, as John Key has talked of working to build a government surplus over the coming 5 years.

The Kiwisaver mortgage diversion facility has also been withdrawn due to its compliance cost and participation numbers of only 600.

Automatic contributions to the New Zealand Superannuation Fund have been suspended, with future payments being decided upon on a year by year basis.

The Health Sector will receive a further $3 billion. Education will $1.3 billion extra. Broadband infrastructure has $290 million of its $1.5 billion required set aside. State Highways maintenance has received $1 billion over the next three years.

Home insulation will receive an upgrade with 180,000 homes being eligible for a $1,800 grant towards insulation and heating. This grant can be expanded to $3,000 for Community Service Card Holders.

While no official indication has been given by credit rating agency Standard & Poor’s as to the timing or result of their credit rating decision, Prime Minister John Key has made optimistic statements both to the possible outcome and the time until its announcements.

Three Standard & Poor’s executives were in a meeting with John Key, in an opportunity for him to elaborate on New Zealand’s future economic plans. He said in a statement after the meeting, that the executives understand his plans, although he has no indication in regards to their credit rating decision.

Prime Minister John Key has come under attack from opposition leaders recently for apparently paying too much head to credit rating agencies in the writing of the budget. Labour leader Phil Goff was a prime figure behind these accusations, saying that New Zealand should be more concerned with creating jobs as opposed to “pandering” to credit rating agencies.