Terry Baucher crunches all the tax news in the Budget, and says going into the 2020 election is when we might see changes in tax thresholds

By Terry Baucher*

With any major tax initiatives all kicked over to the Tax Working Group for review, unsurprisingly the Budget made no changes to existing tax rates and thresholds. 

No increases in thresholds results in extra tax revenue through the effect of ‘fiscal drag’ whereby individuals pay more tax as their earnings ‘drag’ them into higher tax brackets. 

For the year to 30 June 2018 the fiscal drag effect is calculated as $276 million.  By 30 June 2022, when the total tax take is predicted to rise by almost 25% to over $103 billion, it will be $398 million. 

At some stage thresholds, which have not been increased since 2010, will need to be adjusted, but for the moment the government, like its predecessor, is happy to collect the additional revenue.

Two significant tax changes were announced prior to the Budget.  The major initiative is the ring-fencing of residential property losses. From 2020 it will no longer be possible to offset losses against other income. Instead the losses must be carried forward for future use. The additional tax collected as a result of this change is $125 million for the June 2021 year rising to $190 million for the June 2022 year.

The other change - and one likely to affect more taxpayers - is the introduction of GST on low-value imported goods from 1 October 2019.  The current estimate is for this measure to raise $218 million between 1 October 2019 and 30 June 2022. 

In the meantime, Inland Revenue will get a further $31.3 million of funding over the next four years to boost compliance.  $23.5 million of this is specifically targeted at ensuring outstanding company tax returns are filed.

Another $3 million is to analyse the potential for improved tax compliance in ‘specific industries’ through better third-party reporting and withholding taxes.  This is probably aimed at contractors not currently covered by the PAYE rules. 

Overall, Inland Revenue expects to recover approximately an additional $239 million over the four years to 30 June 2022 from enhanced compliance activities.

There’s some more details about the Research and Development tax incentive which will involve $1 billion over four years.  Eligible businesses spending more than $100,000 annually on R&D will get a rebate of 12.5 cents for every dollar of R&D spend.

In a nod to the Deputy Prime Minister’s love of racing the bloodstock tax rules will change to allow deductions to be claimed for the “costs of high-quality horses acquired with the intention to breed.” A snip at $4.8 million over the next four years.

Migrants can expect to pay another $113 million in fees over the next four years, and the Immigration Levy is expected to raise another $44.7 million over the same period.


*Terry Baucher is an Auckland-based tax specialist and head of Baucher Consulting.  

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9 Comments

Did the previous Government not legislate to offset fiscal drag by raising the tax thresholds only to have the current one repeal that legislation as soon as it got into power?

Hopefully we will have got rid of this Government by 2020 , they have turned out to be a major disappointment .

Corruption in plain view? Oh, no, not in New Zealand:
In a nod to the Deputy Prime Minister’s love of racing the bloodstock tax rules will change to allow deductions to be claimed for the “costs of high-quality horses acquired with the intention to breed.” A snip at $4.8 million over the next four years.

Do we really have to copy the US system of pork barrel politics?

... we'd be a much happier and healthier country if we shut down the pokies entirely .... and got Kiwis off their bums and out into the fresh air of a racetrack to watch the nags --- or failing that , if the wives and girlfriends refuse to gallop --- to watch the horses tearing it up down the main straight ...

Ahhh ... the fresh aroma of stables and bookies .... love it !

Gummy - thats totally naive - not healthier by a long shot. As someone who has to raise funding for a sports club, like a multitude of others in my position, without pub charity funding my club would fold as without it unquestionable the majority of the 600 players in my club could not afford the subs required to continue to play the game - in the meantime the gamblers would find say online gambling or the alike to satisfy their addiciation, something that doesn’t contribute to NZ society at all. Of course, if the tax payer replaced those hundreds of millions (and why not we’re into income redistribution nowadays) then all is well ...,yeah right

Can someone please advise us why this COL keep going on about the next 4 years?
When the parliament term is for 3 years I thought, is it so that when they get voted out in 3 year term they can say that it was designed for 4 years?
They are gone in 3 years and yes they are as diabolical as most of the intelligent voters thought they would be!

This Government has done nothing but bumble from one crisis to the next .

Hoaxes ( Kiwibuy/build/borrow)
Scandals ( ministers swanning about in airforce helicopters )
Disgraceful behaviour and underage drinking ( At Labour camp )
Failure to honour election promises ( and endless list of broken promises )
Lying ( about just about everything )
Manipulation and lying in Parliament ( the Broadcast Minister )
An endless raft of new taxes ( and I mean endless)
A Prime Minister who does not know an excise duty is a TAX
Telling porkies about sewage running through the wards at Middlemore Hospital (when this was simply untrue )

Agree with you Boatman. But really Simon Bridges, his useless and a wet fish. That's the best national came up with. I would much prefer Amy Adams or anybody else. National will continue to be arrogant and lose again. We are in serious trouble if this crazy coalition lot get in for a second term. It will be spend, spend, spend and tax, tax, tax. Make the rich poor so bridge the gap, they are anti - prosperity.

Agree with you Boatman. But really Simon Bridges, his useless and a wet fish. That's the best national came up with. I would much prefer Amy Adams or anybody else. National will continue to be arrogant and lose again. We are in serious trouble if this crazy coalition lot get in for a second term. It will be spend, spend, spend and tax, tax, tax. Make the rich poor so bridge the gap, they are anti - prosperity.