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Budget Alert 2023

‘Support for today building for tomorrow’.

Like the rest of the world, New Zealand has reeled from the aftermath of Covid, rising inflation and interest rates, and the cost-of-living crisis. This year we also have a massive storm damage repair bill.

The 2023 Wellbeing Budget was distinctly lacking in a lolly scramble. Treasury believes we have headed off recession for this year. Inflation is predicted to fall to 4.5% by late 2023. The budget forecasts a $7.6b deficit for this year, rowing back to a $0.6b surplus next year. Growth of 3.2% is predicted to June 2023, slowing to 1.0% by June 2024.

Tax

Any tax cuts, or changes to the tax thresholds were vetoed as this was viewed as worsening inflation.

The big news was an increase to the trustee tax rate: In 2021, with a new 39% top tax rate for those earning over $180k a year, experts predicted some taxpayers would use trust entities (with a 33% tax rate) to minimise tax. The release of Inland Revenue’s recent High Wealth Individuals research was referred to where it stated income subject to the trustee rate spiked from $11.4b in the 2020 tax year to $17.1b in the 2021 year.

This budget raises the 33% trustee tax rate to 39% from 1 April 2024. Beneficiary income derived by certain private companies will also be taxed as trustee income, to ensure the new rate for trustee income cannot be sidestepped by distributing trust income to companies taxed at 28%.

Deceased estates and trusts for disabled persons
will not be subject to the 39% rate.

Rollover relief: Tax relief is available in the form
of rollover relief on depreciation recovery income or income on revenue account assets arising from insurance proceeds or compensation on business assets destroyed by North Island flooding events, from 2022-23 till the 2027-28 income year. Taxpayers need to elect to apply the rollover relief provisions, notifying the Commissioner of the election.

Rebate for gaming sector: There’s a new 20% tax rebate for video game development, for eligible game development studios with a minimum annual $250k expenditure. Studios can receive up to $3m per year, backdated to 1 April 2023.

Taxing multinationals: Following the OECD’s direction on international taxation, multinationals operating in New Zealand may be subject to additional New Zealand tax where the enterprise’s worldwide income bears an effective tax rate of less than 15%.
In addition, the Government look to be following the OECD’s lead on an internationally coordinated approach to addressing taxes on digital services but if such a solution is not worked through by December 2023 the Government may introduce its own digital services tax. We’ll see.

Business outlook

Business owners may continue to feel glum about their risk to reward ratio. If cost

of living pressures on households ease, increased consumer spending power will be welcome to retailers. Infrastructure repair and development, increases in public housing and private construction may stimulate demand in the construction sector and downstream industries. Recovery in tourism and hospitality, increased net migration, firmer supply chains and declining global inflation (particularly in oil and food) with lower import costs should also help.

Labour shortages and wage pressures continue though measures like extending the Apprenticeship Boost initiative to the end of 2024 will help, subsidising employers and enabling an estimated 30,000 apprentices to start or continue in key industries.

There’s still huge uncertainty. Margins are tight. You need to be able to boost productivity. Watch your cash flow, manage debtors closely and monitor your exposure to risk (especially uncontrollable risk such as subcontractors increasing pressure for retention payments or businesses failing before payments are secured).



 

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