No News is good news?
Finance Minister Hon Bill English revealed no tax surprises in the 2016 Budget Speech. Rather, the message from the Minister of Finance is that New Zealand is heading in the right direction and trends are favourable, but future economic shocks cannot be ruled out. Therefore, the economy demands further prudent management.
The key elements of this year’s Budget are directed at science and innovation, infrastructure investment, health and other social investment. The maintenance of operating surpluses is a key objective, together with debt reduction. It is clear that any prospect of tax rate reductions is dependent on the achievement of these later goals.
In terms of fiscal strategy the focus is on the medium term. Temporary variations in forecasts, such as a projected reduction in the tax take, are to be disregarded in the interests of business and taxpayer certainty.
Essentially, the Government has delivered a mid‐term Budget which pulls existing policy levers. The results of this fine‐tuning are awaited.
The key tax measures in Budget 2016 were revealed:
- Reform of the provisional tax regime – removal of use of money interest for the first two provisional tax instalments, extending the safe harbour threshold from $50k to $60k and the introduction of a new “accounting income method” that will allow taxpayers with a turnover of less the $5m to use their accounts to calculate and pay provisional tax monthly or two-monthly.
- Overhaul of the rules for schedular withholding payments – giving contractors the option of choosing their own withholding rate (while having a minimum 10% rate for resident contractors and 15% for non-resident contractors), bringing labour-hire firms within the net for withholding payments and bringing in a volunatry option for contractors not currently covered by the schedular withholding rules.
- Removal of late payment penalty – the current 1% monthly incremental late payment penalty will be phased out in a staggered approach.
- Greater transparency – tax debt in serious cases will be disclosed to credit reporting agencies and Inland Revenue will share information with the Registrar of Companies in cases where a serious offence has been (or will be) committed.
The Finance Minister also referred to NZ’s recent signing of an international agreement that increases information sharing between the revenue authorities of 39 countries, the current “John Shewan” review of NZ’s foreign trust regime and the continuing work to address tax avoidance issues that NZ is carrying out as an OECD member.
In terms of capital spening, the Budget allocates $857m for Inland Revenue’s new tax administration system.