The Beehive’s Banquet Hall was a fitting venue for the financial festivities of today’s Budget announcement. Analysts and journalists were met with the simple four word slogan “A plan that’s working”, echoed shortly after by Bill English in his budget speech. Budget 2015 sees the Government proclaim four priorities: responsible finance management; building a productive and competitive economy; delivering better public services; and supporting the Canterbury rebuild. Below we outline key takeaways for our readers.
Economic growth is now forecast at 2.8 per cent on average over the next four years. The deficit for 2014/15 is now $2.2 billion less than last year’s, forecast at $684 million, with a steady surplus of $176 million forecast for 2015/16, followed by $1.5 billion in 2016/17 and rising to $3.6 billion in 2018/19. Net operating costs for Budget 2015 are set at $1 billion per year – this includes $6.1 billion of new operating spending over the next four years, $2 billion of which will be funded through reprioritisation and increased revenue. The average wage is expected to rise by $7,000 to $63,000 a year by mid-2019. Operating allowances remain unchanged at $1 billion per year for Budget 2016 before rising to $2.5 billion in 2017 (the higher allowance intended to provide wriggle room for modest income tax reductions should the conditions allow).
Net core Crown debt is forecast to peak at 26.3 per cent of GDP in 2015/16, before falling to 19.7 per cent of GDP in 2020/21 – reflecting the Government’s goal of bringing the debt down to 20 per cent of GDP by 2020. In dollar terms, net debt is still set to rise up until 2017/18.
A feature of Budget 2015 is significant reductions in ACC levies – National is set to provide for annual ACC levy cuts of $375 million in 2016 and a further $120 million in 2017. At this stage, the cuts are anticipated to be spread across all levied accounts, the effect of which could be dramatic. For example, the average motor vehicle levy could fall to around $120 in 2016, a third of what it is currently.
The Budget confirms $939 million in new capital spending from the ‘Future Investment Fund’, the fund set up to distribute proceeds from the Governments share offer programme. This includes:
- $210 million to secure the next stage of the Ultra-Fast Broadband – extending it to 80 per cent of New Zealanders;
- $244 million for new schools, with National confirming the funding of two additional Partnership Schools/Kura Hourua, expected to open in either 2016 or 2017;
- $97 million towards regional highways, including $40 million for the investigation, design and construction of urban cycleways;
- $52 million in contingency to replace the Waitangi Wharf on the Chatham islands;
- $35 million to extend Immigration New Zealand’s new ICT systems – aimed at improving border security and efficient visa services; and
- $209.8 million to KiwiRail, with a further $190 million to be funded in Budget 2016. An additional $6.5 million will be available over the next three years to complete signals upgrades on the Wellington Metro Rail network.
Tax on property transactions
A hot topic leading up to the Budget, the Government confirmed that gains from the sale of residential property purchased on or after 1 October and sold within two years of purchase will be taxed. Exemptions from the new “bright line” test will be available for a property that is the seller’s main home, inherited from a deceased estate or sold as part of a relationship property settlement. This may not be the end of the matter however, as National is keeping the door open for introducing from mid-2016 a withholding tax for non-residents selling residential property within two years of acquisition.
Improved border security
A key theme of Budget 2015 is improving security at the border through the introduction of immigration, customs or biosecurity measures. A border clearance levy will take effect from 1 January 2016. The amount of the levy will be subject to public consultation in June, but it is expected to sit at around $16 dollars for arriving passengers and around $6 dollars for departing passengers – the idea being to transfer the cost from taxpayers onto passengers travelling internationally. $24.9 million will go towards new biosecurity initiatives (in addition to $2 million of capital funding), such as improving New Zealand’s health import standards and greater auditing of other countries’ biosecurity systems.
Other notable mentions
National, it seems, will also seek to answer the calls of Auckland’s housing crisis by freeing up Crown-owned land throughout the Auckland region. A $52.32 million capital contingency fund will be established to facilitate housing development on Crown-owned land in Auckland. The Government will make available select vacant parcels of land (through its various agencies which collectively hold 500 hectares) via a private sector partner and through a competitive process (mirroring the Crown’s relationship with Fletcher Residential in Christchurch).
National will commit $41.2 million for resource management and water reform, including $20.4 million to support local authorities implementation of the resource management reforms.
Over the coming days and weeks, National will surely trumpet it has given struggling families a golden ticket, promising a $790 million child hardship package aimed at addressing long-term drivers of hardship.
Ear-marked to take a back-seat this budget, National have announced that the $1,000 kick-starter payment will no longer be offered to people enrolling into KiwiSaver (effective immediately). Mr English stated that the cut represented the Government’s re-prioritisation of Government spending, and confirmed that the removal would be a permanent one. The cut is expected to save the Government more than $500 million over the next four years.
The Government’s contribution to the Canterbury rebuild since 2010 is now on track to reach $16.5 billion, with an additional $107 million in funding over the next four years.
Further, our national bird also made its way into the Budget, with the kiwi set to receive $11.3 million in funding in an effort to counter its alarming decline in the wild.
This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.