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Te wiki o te tāke – The New Zealand Tax Podcast Budget Special; Tax cuts delivered, but watch out student loan borrowers

Public Policy / opinion
Te wiki o te tāke – The New Zealand Tax Podcast Budget Special; Tax cuts delivered, but watch out student loan borrowers
NW
Nicola Willis by Ross Payne.

After what seems to have been an interminable dance of the seven veils, all has been revealed and we now know the final shape of the Government’s tax package. Nicola Willis has delivered on National’s manifesto and increased thresholds as promised.

That was unsurprising, although there’s a twist in that these changes will take effect from 31 July, four weeks later than expected. The delay is to enable payroll providers to update their systems.

The big surprise for me is the decision to increase the threshold for the Independent Earner Tax Credit (IETC) to $70,000. As I said in my Budget preview, I expected this to be cut to help pay for, or even increase, the threshold adjustments. Speaking on Breakfast TV, I expressed the hope that any threshold adjustments would focus on the group around the threshold where the tax rate jumps from 17.5% to 30%. The lift in that threshold to $53,500 together with the extension of the IETC will help, but more needs to be done in my view.

Giving with one hand, taking with the other…

The Government has also increased the in-work tax credit (IWTC) by $50 per fortnight, which is welcome. However, its effect will be mitigated by the fact that the $42,700 annual family income threshold above which the IWTC will be abated at a rate of 27 cents per dollar remains unchanged. The threshold has not been increased since 1 July 2018 which means that families with income above the threshold face an effective marginal tax rate of at least 46.1% (17.5% plus 27% abatement plus 1.6% ACC Earner Levy) which is higher than that of the Minister of Finance. It remains remarkable to me that this issue has been allowed to continue for so long, but when I raised the issue with the Minister of Finance her response was  “I utterly reject the question”.  (There were quite a few other questions also rejected with varying degrees of utterly).

Increased Inland Revenue funding

As also promised by New Zealand First in its manifesto, the Budget proposes an additional $29 million annually for increased compliance activities. Interestingly, the specific appropriation for investigation, audit and litigation activities will be increased from $106.2 million to $165.4 million. The Appropriation for Services to manage debt and unfiled returns will also rise from $83.5 million for the June 2024 year to $105.7 million in the coming year. Both increases indicate we should expect to see a significant rise in Inland Revenue investigation and debt management activity.

Student loans

Unlike my prediction about the IETC, my speculation that there would be some increases here was correct. The Government proposes increasing the interest rate on student loan debt payable by overseas based borrowers from 3.9% to 4.9% from 1 April 2025. Furthermore, the late payment interest for both overseas AND New Zealand based borrowers will increase by 1 percentage point.

However, as previously discussed, the amount of student loan debt has steadily increased and only 26% of overseas-based borrowers are making repayments. The Budget Appropriations include a provision for debt impairment of $633 million (up from $539 million) for the coming year.

As noted above Inland Revenue is boosting its compliance activities for student loan overseas-based borrowers, “including those returning to or visiting New Zealand”.  We can therefore expect to see a few defaulters being detained at airports. It will be interesting to see if such moves result in significantly increased repayments.

Waste disposal levy changes

Elsewhere, the Government proposes increasing the level of Waste Disposal Levy but at a lower rate than initiated by the previous Government. It’s anticipated the Levy will raise a total of $1.195 billion over four years to 2027/28 which is split 50:50 with local government. The Government proposes amending the Waste Minimisation Act 2008 to expand the range of activities the levy can be used for, such as restoring freshwater catchments.  This sort of recycling of environmental levies is to be supported but perhaps the split between local and central government should be shifted in favour of local government.

Calling Inland Revenue?

Wading through the detail of the Appropriation Estimates often reveals some interesting nuggets. The Vote Revenue Estimates included the following details about Inland Revenue’s expected performance when answering calls and responding to correspondence. It will be no surprise to many to note that the standard of answering calls within 4 ½ minutes was not met.  Going forward Inland Revenue expects to answer 60% of all calls so I will check in next year to see how it performed.

Now what?

Having delivered on its campaign promises what next for the Government’s tax policy? The Finance Minister referenced the ACT Party’s proposals to flatten the tax scale but made no commitment as to when that might happen.

Willis also acknowledged Treasury’s advice of a structural deficit of about 1.5% of GDP (roughly $6 billion). This can only be addressed by spending cuts or tax increases and the expectation at present is for spending cuts to meet that gap. That means any future threshold adjustments are off the table, including the possibility of automatic indexation at some point.  For the moment the Finance Minister will be happy to take the credit for the changes announced today. Let’s just hope it doesn’t take another 14 years for the next revisions.

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53 Comments

That means any future threshold adjustments are off the table, including the possibility of automatic indexation at some point.  

Happy to have indexing once we have comprehensive capital gains tax, gift tax and inheritance tax.

The poorest in NZ society are being screwed over and we dont even know by how much.  There is no historic time series of the number of people using food banks. (Added: we do know that food banks provided for 480,000 people per month (that's roughly the whole population of NZ per year) in 2023.)

https://www.nzfoodnetwork.org.nz/foodbanks-feeding-165-more-people/#:~:….

And how are the poor going to afford the proposed power price increases?  We already have 130,000 households in energy poverty.

Neoliberalism is failing NZ badly. A society is judged on how well it treats its most vulnerable and NZ is doing shockingly badly.  This budget does nothing for the very poorest in NZ.

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kiwi_overseas sounds like it's enough to make you jump ship...oh, your username suggests you already have. Where is the grass greener?

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Its enough for me to want to be prime minister or finance minister and fix this screwed up country.

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It does nothing to stop doctors going overseas. 

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"A society is judged on how well it treats its most vulnerable"

An interesting statement and a noble one on the surface.  Another statement could be:

"The least productive people having to be propped up by the most productive people leads to a society where everyone loses."

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And no one gets health care. 

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Sorry, the mddile class and rich dont make their money in a vacuum.  They only do so as society exists.  (Try moving to desert island and making a living there).

Furthermore a capitalist society will always be a pyramid of wealth.

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Unlike you, I wasn't talking about the "rich", "wealth" and "capitalist".  Please re-read my post.

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Replace the words rich, wealth and poor with productive and non-productive.

It doesnt change my comment.

Also there are plenty of poeple that do voluntary work that has not financial rewards but has socioeconomic benefits to NZ.  Are they unproductive because there is no financial gain?

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I'm glad you see my point.  You interchange productive with rich and non-productive with poor, not me.  To me productive does not equal rich, yet YOU said "Replace the words rich, wealth and poor with productive and non-productive."

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Who would you classify as "non-productive" and "productive"?

Genuinely I am keen to get your perspective on this.

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I would describe a non-productive person, one that doesn't contribute to society, starting by looking after his/her family first. 

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Say 2 groups of people turn up to an auction for a 1960's house.  A couple looking to buy a rental, and a FHB couple.  The couple with a tonne of equity to borrow against outbid the FHB.  As they're making their way to the carpark, the 2 groups sign a tenancy agreement for a weekly amount that barely covers the landlord's costs. 

Please highlight:  A) the productive people B) the non-productive people.  

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Neither. Nothing new is produced!

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Seems like an extremely subjective measurement, very hard to define who exactly you are talking about.

I'd also point out that you conflated "vulnerable" with "non-productive" in the first place then claim that kiwi_overseas is the one conflating the "non-productive" with "poor". Could be argued that a lot of the most "vulnerable" are productive compared to some of our "least vulnerable".

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So you think looking after your family vs neglecting them is a "subjective measurement".  OK then.

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Where did you get that from? I think it’s vague because you basically said a productive person is someone who is productive. 

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"The least productive people having to be propped up by the most productive people leads to a society where everyone loses." - Well, that's what we are quickly becoming, the landholders get wealthy sitting on their assets. They're the biggest beneficiaries and bludgers by a large margin in terms of how much they extract with how little they produce. It's definitely time to bring back land tax to put a fire under landholders, and give a significant income tax cut and/or GST cut. You want to disincentivise inefficient or unproductive landholdings, and incentivise work and trade.

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I thought they were talking about superannuitants.

 

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Don’t kid yourself that highest earners are by definition the most productive people…

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According to some, the highest earners are more deserving of Superannuation than lower income earners because of how much tax they have paid. 

If tomorrow we had no choice but to cut 20% of recipients or the country goes completely bankrupt, it'll be the bottom 20% of pensioners that miss out to save those with rental properties, millions in the bank, or still working earning over $100k p.a.  

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Yvil The least productive (and the most vulnerable) people are kids. So does propping them up (supporting them) lead to a society where everyone loses? 
Other so called  unproductive people are those who can’t work because they are sick injured or disabled, and people who have lost their jobs/been made redundant through no fault of their own , solo parents looking after young children, and so on. Do we as a society really lose if we support them until they can become productive again? And the retired are unproductive - do we as a society lose by supporting them? 
 

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Isn't that a bit simplistic?  Productivity is measured by delivering outputs more efficiently but by doing so increased output can lead to more shallow outcomes and, as well, unintended consequences.

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Whoever wrote that statement clearly doesn’t know how the real world works

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tax cuts is never about the poor, but the working middle.

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It could be, we should be implementing a tax free income threshold to $20k and bringing back land tax to fund it.

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"A society is judged on how well it treats its most vulnerable"

Attributed to Ghandi. I've been to India a couple of times so have a pretty good idea of what he was referring to & how NZ compares.

 

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Yes, there is a huge difference between NZ and India.

But there is also a significant difference in NZ between now and when I grew up.

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We do agree on that. However our perspectives are different.

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You a classic case of pious advice when you’re clearly looking after yourself by jumping ship…. Why did you not stay in NZ and gift all your possessions to the needy people you pretend to care about 

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Might be attributed to Ghandi, but was it not the gist of what Christianity was ultimately teaching...

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Christianity isn't as saintly as many refer to. It didn't work out so well for many during the crusades, or via colonialism which was predominantly by Christian countries.

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Minimum wage still in the third tax bracket, Living wage is the same.

Yet, everyone shrugs shoulders at why people don't want to work.

We then do some fancy footwork to try and give them most of the tax back.

We need to collect less income tax period, and start taxing other sources. Tax free threshold to remove the admin. Lower tax rates and higher brackets to even things up.

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“Show me the incentive and I'll show you the outcome”

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"... but only if you have enough money to take the incentive!"

Funny how that key bit get's left out.

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the $42,700 annual family income threshold above which the IWTC will be abated at a rate of 27 cents per dollar remains unchanged. The threshold has not been increased since 1 July 2018 which means that families with income above the threshold face an effective marginal tax rate of at least 46.1%

They still won't touch this? It should be a dollar for dollar abatement for anything earned over the threshold so for those with children wishing to progress their careers, can do so without losing more than they gain. How does it incentivise achieving if you earn say $20 more a week from a pay rise, and get $35 (figure used solely for example) less from WFF? 

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Just had a quick gland at the budget.. 
I think this must be the base line when the set out the budget for this year  "if the poors can't help themselves, no amount of handouts from govt will help them!" 

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"... a quick gland at the..."?

A somewhat disturbing image. No doubt you meant 'gand' - as in short for gander.

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Good on them if they chase student loans from overseas.My boy is paying his back from Sydney.Amazing that only 26% of overseas based borrowers are making repayments.Chase the bludgers,they are just benefit cheats who have better incomes. 

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NZ's full of bludgers, and lots of them were demonstrating today before the budget was even announced.

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So that makes it alright?

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Maybe. But I'd suggest a great many more were sitting on their comfy chairs counting their rent and interest.

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Maybe they're productive members of society, and not whingers and bludgers. Possibly law-abiding and providing accommodation for those that don't have the money. 

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And maybe they're bludgers just as much as those the fingers are pointed at. 

Just way more self-righteous.

Productive? Yeah nah.

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Well I've just sold my last renter to Chinese immigrants, because I'm over being a landlord, and I've been a damned good one too. 

My tenants have always been extremely well treated, but enough's enough. 

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Listen to you whining.  Just 2 comments ago you were going on about whingers, yet here you are throwing your toys out of the cot because having your name on the title of a rental property was too hard.  

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I'm not whining, I'm ecstatic For the first time in 46 years I'm not a landlord, industrial or residential. 

I made a fortune out of it, but I was a very good landlord and treated my tenants well. Problems with my properties were fixed instantly, no matter the cost, and at Xmas time I'd buy them a bottle or two of plonk. I mostly had good tenants because I had a very canny method of weeding out possible troublemakers. 

The most damage ever done to one of my properties I attribute to my own carelessness. An associate of mine had immigrant friends arriving from Zimbabwe to escape the problems there, and asked if they could rent a house I was renovating at the time. I agreed, but didn't check whether they were smokers, and both were chain smokers. I got rid of them reasonably quickly, but the entire interior of the house went yellow and stank unbearably. It needed a compete repaint and new wallpaper. 

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I had a very canny method of weeding out possible troublemakers. 

Perhaps a couple of bottles of plonk was involved in that method as well XD 

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Are you providing free accommodation?

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Surely there is a recovery mechanism available via double tax treaties?  I know the ATO are pretty effective at collections….

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A bit disturbing Willis thinks she can just reject any question she does not like.

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Maybe she has what it takes to be PM.

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Earner Tax Credit (IETC) now up to $70,000 ... Is the maximum still capped at $10 per week?

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