May 19, 2023 • 21 mins
It’s been labelled a ‘No Frill’s budget’ by a ‘Bread and Butter’ Government – but what's actually in the 2023 New Zealand Budget?
Hear from CA ANZ NZ Country Head Peter Vial FCA on the CA ANZ perspective on the 2023 NZ Budget, fresh out of the Beehive Budget lock-up.
Did it strike the balance to address New Zealand’s infrastructure deficit and cost of living crisis, without increasing inflation? Were there any tax surprises? What did the business sector get?
All this and more is answered in this special NZ Budget edition of Small Firm, Big Impact, hosted by NZ Public Affairs Manager Daniel Webster.
Read our full NZ Budget coverage here
And members will be able to access our Sharing Knowledge webinar here
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Daniel Webster, Host (00:08):
Hello, I'm Daniel Webster, New Zealand public affairs manager at
Chartered Accountants ANZ. And this is Small Firm, Big Impact.
Peter Vial FCA, CA ANZ NZ Country Head (00:21):
It's not surprising that it's the no frills budget that
government had touted it as. One also called it a
bread and butter budget. And that's exactly what it is.
There weren't any changes to the personal marginal tax rates
or the personal marginal tax rate thresholds. No change to
take GST off food. Also no wealth tax, no capital
gains tax. But what we have got is a little
(00:44):
surprise in there with the tax, the trustee tax rate.
Daniel Webster, Host (00:52):
It's the podcast giving you and your clients the up
to date information to keep you ahead of the pack.
Each fortnight, we'll share resources, tools and expert advice, both
from CA ANZ and a range of people across our profession.
So make sure you're following the pod on your favourite platform.
And if you've got an idea for the show, you
can email podcast at chartered Accountants anz.com. Today's guest is
(01:21):
CA ANZ, NZ country head Peter Vial, FCA, who has
just stepped out of the Beehive budget lockup. Peter, welcome
to small, firm Big Impact.
Peter Vial FCA, CA ANZ NZ Country Head (01:32):
Kia ora Daniel, great to join you. After an intense few
hours and the budget lock up at the Beehive. As usual,
it was freezing in the banquet hall there, but at
least they laid on the sausage rolls and lamingtons.
Daniel Webster, Host (01:45):
Yeah, good to hear. So on a food theme, ask
the government have described themselves as a bread and butter
government and that this would be a bit of a
no frills budget. From what you've seen there. Is that
the case?
Peter Vial FCA, CA ANZ NZ Country Head (02:01):
Absolutely, yes. Daniel, this is a no frills budget fit
for the constrained circumstances that the country is in. It's
not surprising that it's the no frills budget. The government
had touted it as. One also called it a bread
and butter budget. And that's exactly what it is. It
does have four overarching themes. The first is supporting New
(02:22):
Zealanders with the cost of living pressures. They're all we're
all experiencing at the moment and then delivering services that
New Zealanders need and rely on. A third theme was
recovery and resilience, obviously in relation to or directly in
response to the cyclone and floods with experienced earlier this year.
And then of course fiscal sustainability, which picked up quite
(02:46):
a few other aspects. The challenge, I guess for Grant
Robertson as Minister of Revenue again this year was to
deliver a budget that continued to invest as needed infrastructure
in health and education and to throw in some quite
big cost of living measures to assist people who are
(03:08):
really struggling. But to do all of that without exacerbating
inflation or increasing household debt, or adding, as I say,
to inflationary pressures. So that's why he's had to go
with a no frills approach and reprioritise budget allocations from
one place to another in a number of cases.
Daniel Webster, Host (03:32):
Interesting. So what about, first of all, can you talk
us through some of the economic projections or fundamentals that
the government laid out?
Peter Vial FCA, CA ANZ NZ Country Head (03:41):
Yeah. So there's interesting numbers there. Daniel So the Treasury
is forecasting GDP growth of 3.2% this year, falling to 1%
next year and then 3% levelling out at 3% in
2026 and 2027. So over the long term, that average
looks looks reasonable. There are Treasury's no longer forecasting a recession,
(04:04):
which is good news. Obviously a recession is two quarters
of success of two successive quarters of negative growth and
they're not forecasting that we'll have that. Then they've had
to defer the expectation of a surplus by one year
to 2025, 2026. And that's no surprises there. One of
the most interesting figures, of course, for everyone is inflation,
(04:27):
that Treasury is forecasting that it will fall to 3.3%
in 2024 and then to 2.6% in 2025. Those numbers
look or forecasts look quite ambitious to me. I'm not
an economist, but given we've had just come through a
period of 6.7%, 7% inflation and we're still seeing the
(04:48):
cost of living rising, particularly with food costs, I was
a bit surprised to see that inflation is predicted to
drop to 3.3 and then to 2.6. And some good news.
Net government debt to GDP proposed to peak at only 22%
and 2024, which is way lower than comparable economies or economies.
(05:09):
We often compare ourselves to Australia, the UK, the US,
which have much higher debt to GDP ratios, and then
Treasury's forecasting that will reduce to 18.4% in four years
time at the end of the budget forecast period. So again,
that might look a bit ambitious, but Grant Robertson and
(05:30):
Treasury are trying to deliver a cautious conservative budget. They
don't want to be accused of running amok and having
profligate spending, and that's one of the reasons why they're
obviously very keen to keep that net government debt down
below 20%. Unemployment is expected to peak at 5.3% next year.
(05:53):
It's currently around 3.4%. So that is a reasonable increase,
up to 5.3 and then level off a bit and
wages are expected to grow at 5.2% a year over
the four year forecast period. So those were the headline
economic fundamental numbers. Economists around the country will have different
(06:13):
views as to whether they think Treasury's, you know, landed
in the right place on all of those numbers. But
it's just interesting to think, think about them and reflect
on how ambitious potentially some of them are.
Daniel Webster, Host (06:27):
Cost of living was obviously their first priority priority on
that list of four. What does the government doing to
help people afford the essentials?
Peter Vial FCA, CA ANZ NZ Country Head (06:36):
So good question, Daniel. We we were promised a no
frills budget, and that's what we've got. What is, I
think really good to see is that most of the
cost of living measures are very targeted, much more targeted than,
for example, last year's cost of living payment, which went
out to a whole or a large number of people
(06:57):
earning below 70,000, regardless of the source of that income
and regardless of asset and wealth testing. That was all
all not in the mix. And we we read the
stories about people overseas who were receiving that payment and
various other people who didn't didn't need to receive it.
So it's good to see this year that the the
(07:18):
focus is a much more targeted one. There are a
few platforms here, so one is early childhood education. The
government is extending the subsidy for early childhood education to
two year olds. Currently, the subsidy is only for 3
to 5 year olds. It will drop down to cover
two year olds and so will provide some much needed
(07:39):
assistance to parents with very young children, allowing them to
return to the workforce earlier should they choose to do so,
which is good, obviously good for the the country's productivity.
There's the government's going to remove the $5 prescription charge,
which we've all had to pay for many years from.
(08:00):
From my recollection, that will be removed in this budget.
And that's obviously not targeted because everyone's eligible for it.
But it is progressive in the sense that those with
the most critical health needs, the higher health needs who
need more prescriptions than other healthier people will benefit the most.
(08:22):
So it does seem to be a sensible measure. There's
some subsidies and public transport which will be of interest.
So free public transport for children under 13 and permanent
half price fares for people between 13 and 25. So
for a number of years now, we've had free public
transport for the national superintendence and this is looking at
(08:46):
the other end of the demographic curve and extending that
free program to under 13 year olds help those who
travel by public transport to school or around the urban
areas and rely on public transport. It's also a sound
measure from an environmental environmental perspective, obviously. And then obviously
(09:07):
for people like tertiary students or young people who are
in work who need to rely on public transport or
rely on public transport, this is a good outcome for them.
And for when you think about it, for a family
with a few children travelling to school by bus or
for tertiary student families with, you know, several tertiary students,
this is a really good way of cutting their weekly costs.
(09:31):
So that will be helpful. Um, you'll recall a couple
of years ago we had the winter energy payment, which
was a payment that went out to a broad group
of people, including all national superannuation funds. It was effectively
a lump sum payment spread over a few months to
cover people's winter energy costs. It wasn't targeted and even
(09:54):
wealthy people, people who didn't need the subsidy, were receiving it. And. WHEREAS,
Now with this budget, the government has chosen to be
more targeted. It's going to fund 100,000 new heating and
insulation retrofits and an interestingly 5 million LED light bulbs,
both of these aimed at reducing the power bills of
(10:14):
those that are most in need. So we think the
more targeted approach is sensible. One obvious question is whether
we have the workforce to do the retrofits, the heating
and insulation retrofits. One thinks that it might well be
the same workforce that has been relied on to do
a lot of the cyclone recovery work. So that will
(10:34):
be that will time will tell whether we do have
the workforce to do those retrofits. One other change here
under this cost of living area and the cost of
living area was we tweak to the KiwiSaver rules that
it will ensure that Kiwisavers who are on parental leave
won't miss out. They will not be disadvantaged by being
(10:56):
on parental leave, so their long term savings through KiwiSaver
will not be affected. And that's from a gender equity
perspective as a really good change. It's not a big change.
It won't cost the government that lot, but it does
send a very positive signal that that gender equity as
is and savings. And there's very good research which confirms
(11:21):
that women end up with with lower retirement savings than men.
And this will be a way of helping address that.
So as I say, we're pleased that the cost of
living measures are largely pretty targeted and they're not. You know,
that is sensible and the constrained economic circumstances that the
government and we are all in at the moment. There
(11:43):
isn't money to spray around as there was in COVID.
And as I said, with last year's cost of living payment,
it has to be targeted.
S3 (11:53):
Right.
Daniel Webster, Host (11:55):
There wasn't meant to be any major tax changes. They
ruled those out. But was there something?
Peter Vial FCA, CA ANZ NZ Country Head (12:01):
Well, there was something. Daniel But I'll save my breath
for a second before talk about something and just talk
about what? There wasn't. So and that was no surprise.
There weren't any changes to the personal marginal tax rate
or the personal marginal tax rate thresholds. No change to
take GST off food. All of those have been ruled
out by the Prime Minister, the Minister of Revenue and
(12:23):
others before the budget. So no surprises there. Also, no
wealth tax, no capital gains tax. We might see something
in Labor's policy leading into the election, but certainly nothing
in the budget. Again, no surprises there. Of course many
people are struggling with the effects of bracket creep whereby
(12:44):
their incomes are pushed into, their incomes increase, but they
don't get the full benefit because they're pushed into the
next marginal tax rate bracket. That's been a problem that
we've had for decades. It's been particularly acute in the
last few years with wage inflation. So people who are
on average incomes are paying tax at reasonably higher rates.
(13:06):
So in an ideal world we would have seen that
problem tackled. But those changes are very expensive and they
just aren't affordable in the current environment with the pressures
of the cyclone and flood relief and and also they
would be inflationary potentially. So they're off the table and
we knew they were off the table. So we haven't
got any of that. But what we have got is
(13:29):
a little surprise in there with the tax, the trustee
tax rate. So the trustee tax rate has for a
number of years been 33%. This government and this budget
has announced that it will move the trustee tax rate
from 33% to 39% to align with the top personal
marginal tax rate of 39% that came in from 1st
(13:49):
April 2021. Why is the government doing this? The government
is doing this because it has identified a loophole and
the evidence is very clear. The budget documents confirm that
in the first year of the increase in the to
the 39% for the top personal marginal tax rate, there
(14:10):
was a sudden spike in income earned by trustees. So
trustees were earning $5.7 billion more of income in that
year than they had in the previous income year. So
that was the evidence the government needed to to show
that there was a loophole and it was being used or,
you know, in their view, abused. So that is that
(14:31):
opportunity has been removed with effect from one April 20th, 24.
Those rates will be aligned. Personally, I was very pleased
to see or hear Minister Robertson announce that that change
will go through the select committee process. So there will
be the opportunity for submissions, one assumes, and that will
(14:52):
be reviewed by the the finance and Expenditure Select Committee
as normal tax change naught tax changes normally are. There
could well be, you know, peripheral issues, there could be
collateral damage, things that officials perhaps haven't thought about that
need to be brought to their attention and to the
Government's attention to Parliament's attention. So those things can be
(15:15):
ironed out through that select committee process. But the key
change here is that the trustee rate will move to 39%
to align with the top personal marginal tax rate. A
few other things I should have mentioned that weren't in there.
There had been some kind of scuttlebutt or gossip about
whether the government might introduce a higher personal marginal tax
(15:35):
rate to apply to very high incomes of, say, 45%.
That's not in the budget. Again, it could come through
in the election policies of different parties, the Labor Party
and obviously might consider that. And it's and it's in
the lead up to the election mentioned. I think there's
no decision to remove GST off fresh food. Often there
(15:59):
are calls for that and particularly in times of economic pressure,
there are calls for that to happen to reduce the
food bill for households that are struggling. I think it's
the right thing not to go down that route because
New Zealand has the most efficient GST system in the world,
according to the OECD, and that's been the case for decades.
(16:24):
It's a very comprehensive tax. It's hard to avoid and
relatively easy to comply with and we don't have all
the definitional issues that come when you start to make
further exemptions and exclusions. And also fundamentally, there's no guarantee,
excuse me, that of GST were taken off food that
(16:45):
that would that price reduction would flow through to the
end consumer. So great to see the government resisting the tax.
To do something in that area. So yeah, so that's
what's happened in tax one. One little surprise and no
big surprises.
Daniel Webster, Host (17:03):
Yeah, a lot left out there.
S4 (17:05):
That will still be on the table for future discussions.
Daniel Webster, Host (17:08):
There were signals that small business wouldn't get much. That
was that was the expectation. Was that true on first blush?
Peter Vial FCA, CA ANZ NZ Country Head (17:18):
Certainly on first blush, there's no significant direct support for
small business. So, you know, measures that are specifically targeted
at small business generally, small business, there will be implications
for small business, for example, And all the money that's
being invested in resilience and recovery from the cyclone and
(17:38):
the floods that will have some flow on effects for
those small businesses affected by those events and also the
small businesses that support or work with those businesses affected.
But they did. The government, interestingly, the government did pick
one winner here in the small business area. They've decided
to give the gaming development sector. So video gaming entities
(18:01):
or companies a businesses, a 20% rebate for video game
development studios. So the sector brought in $400 million in
revenue in 2022, and it's growing rapidly. I understand it's
quite a big sector. And the Wellington region, for example.
And so they've been a winner out of this. They've
got the support, the support aligns the New Zealand treatment
(18:25):
with or puts them on a more level playing field
with this kind of support and subsidy that the Australian
equivalent industry receives. So and they are competing on a
global stage for this. So it's great to see that
this has happened for them. But the bigger question or
the obvious question is what is being done to support
(18:45):
other sectors that are made up predominantly of small business,
like the video gaming sector? They might not be as
sexy as the video gaming sector, but they are making
equally important contributions to the New Zealand economy and are
also having to compete with global competitors, including for for labour,
just in the same way as the video gaming sector has.
(19:05):
So what I'd like to see is if the support
for the video gaming sector is successful and does that
grow that industry and give a decent return on investment,
then that should be a model that's looked at to
see whether it can be rolled out to other sectors.
Some of the other sectors that are interesting here are
(19:26):
tourism and horticulture, for example, got relatively small, pretty, pretty
small because support for technology development, for example, and their
sectors and innovation. So not a lot for them. And
they are big industries, really critical to New Zealand's economy.
So again, I say let's see how this gaming sector
support works and if there are lessons to be learned
(19:48):
there that can be and the money's there to roll
them out more widely, then then the government, the government
should should go for it. There is a focus on
technology and science with $400 billion invested in some sorry,
400 million invested in several multi institution science hubs. Again,
(20:10):
that's the type of investment that ultimately in the long
term will have ripple effects around the economy. The more
research that has done in those science hubs that's commercially
that can be commercialized, the better and there'll be flow
on effects for small business and and the hubs around
those or the networks, the clusters around those science hubs.
So that's that's a sizable investment.
Daniel Webster, Host (20:34):
Okay, Peter. Well, that's all we've got time for today.
To all the listeners out there, if you want to
know more, Peter's full perspective is on our 2023 budget
page on chartered accountants ANZ. And you can check out
a recording of our Sharing Knowledge session that will also
be up there. So thank you for joining us, Peter.
Peter Vial FCA, CA ANZ NZ Country Head (20:53):
Pleasure, Daniel, Good to talk to you.
Daniel Webster, Host (20:54):
Yes, and bye for now.
Peter Vial FCA, CA ANZ NZ Country Head (20:56):
Ka kite ano .
Hello, I'm Daniel Webster, New Zealand public affairs manager at
Chartered Accountants ANZ. And this is Small Firm, Big Impact.
Peter Vial FCA, CA ANZ NZ Country Head (00:21):
It's not surprising that it's the no frills budget that
government had touted it as. One also called it a
bread and butter budget. And that's exactly what it is.
There weren't any changes to the personal marginal tax rates
or the personal marginal tax rate thresholds. No change to
take GST off food. Also no wealth tax, no capital
gains tax. But what we have got is a little
(00:44):
surprise in there with the tax, the trustee tax rate.
Daniel Webster, Host (00:52):
It's the podcast giving you and your clients the up
to date information to keep you ahead of the pack.
Each fortnight, we'll share resources, tools and expert advice, both
from CA ANZ and a range of people across our profession.
So make sure you're following the pod on your favourite platform.
And if you've got an idea for the show, you
can email podcast at chartered Accountants anz.com. Today's guest is
(01:21):
CA ANZ, NZ country head Peter Vial, FCA, who has
just stepped out of the Beehive budget lockup. Peter, welcome
to small, firm Big Impact.
Peter Vial FCA, CA ANZ NZ Country Head (01:32):
Kia ora Daniel, great to join you. After an intense few
hours and the budget lock up at the Beehive. As usual,
it was freezing in the banquet hall there, but at
least they laid on the sausage rolls and lamingtons.
Daniel Webster, Host (01:45):
Yeah, good to hear. So on a food theme, ask
the government have described themselves as a bread and butter
government and that this would be a bit of a
no frills budget. From what you've seen there. Is that
the case?
Peter Vial FCA, CA ANZ NZ Country Head (02:01):
Absolutely, yes. Daniel, this is a no frills budget fit
for the constrained circumstances that the country is in. It's
not surprising that it's the no frills budget. The government
had touted it as. One also called it a bread
and butter budget. And that's exactly what it is. It
does have four overarching themes. The first is supporting New
(02:22):
Zealanders with the cost of living pressures. They're all we're
all experiencing at the moment and then delivering services that
New Zealanders need and rely on. A third theme was
recovery and resilience, obviously in relation to or directly in
response to the cyclone and floods with experienced earlier this year.
And then of course fiscal sustainability, which picked up quite
(02:46):
a few other aspects. The challenge, I guess for Grant
Robertson as Minister of Revenue again this year was to
deliver a budget that continued to invest as needed infrastructure
in health and education and to throw in some quite
big cost of living measures to assist people who are
(03:08):
really struggling. But to do all of that without exacerbating
inflation or increasing household debt, or adding, as I say,
to inflationary pressures. So that's why he's had to go
with a no frills approach and reprioritise budget allocations from
one place to another in a number of cases.
Daniel Webster, Host (03:32):
Interesting. So what about, first of all, can you talk
us through some of the economic projections or fundamentals that
the government laid out?
Peter Vial FCA, CA ANZ NZ Country Head (03:41):
Yeah. So there's interesting numbers there. Daniel So the Treasury
is forecasting GDP growth of 3.2% this year, falling to 1%
next year and then 3% levelling out at 3% in
2026 and 2027. So over the long term, that average
looks looks reasonable. There are Treasury's no longer forecasting a recession,
(04:04):
which is good news. Obviously a recession is two quarters
of success of two successive quarters of negative growth and
they're not forecasting that we'll have that. Then they've had
to defer the expectation of a surplus by one year
to 2025, 2026. And that's no surprises there. One of
the most interesting figures, of course, for everyone is inflation,
(04:27):
that Treasury is forecasting that it will fall to 3.3%
in 2024 and then to 2.6% in 2025. Those numbers
look or forecasts look quite ambitious to me. I'm not
an economist, but given we've had just come through a
period of 6.7%, 7% inflation and we're still seeing the
(04:48):
cost of living rising, particularly with food costs, I was
a bit surprised to see that inflation is predicted to
drop to 3.3 and then to 2.6. And some good news.
Net government debt to GDP proposed to peak at only 22%
and 2024, which is way lower than comparable economies or economies.
(05:09):
We often compare ourselves to Australia, the UK, the US,
which have much higher debt to GDP ratios, and then
Treasury's forecasting that will reduce to 18.4% in four years
time at the end of the budget forecast period. So again,
that might look a bit ambitious, but Grant Robertson and
(05:30):
Treasury are trying to deliver a cautious conservative budget. They
don't want to be accused of running amok and having
profligate spending, and that's one of the reasons why they're
obviously very keen to keep that net government debt down
below 20%. Unemployment is expected to peak at 5.3% next year.
(05:53):
It's currently around 3.4%. So that is a reasonable increase,
up to 5.3 and then level off a bit and
wages are expected to grow at 5.2% a year over
the four year forecast period. So those were the headline
economic fundamental numbers. Economists around the country will have different
(06:13):
views as to whether they think Treasury's, you know, landed
in the right place on all of those numbers. But
it's just interesting to think, think about them and reflect
on how ambitious potentially some of them are.
Daniel Webster, Host (06:27):
Cost of living was obviously their first priority priority on
that list of four. What does the government doing to
help people afford the essentials?
Peter Vial FCA, CA ANZ NZ Country Head (06:36):
So good question, Daniel. We we were promised a no
frills budget, and that's what we've got. What is, I
think really good to see is that most of the
cost of living measures are very targeted, much more targeted than,
for example, last year's cost of living payment, which went
out to a whole or a large number of people
(06:57):
earning below 70,000, regardless of the source of that income
and regardless of asset and wealth testing. That was all
all not in the mix. And we we read the
stories about people overseas who were receiving that payment and
various other people who didn't didn't need to receive it.
So it's good to see this year that the the
(07:18):
focus is a much more targeted one. There are a
few platforms here, so one is early childhood education. The
government is extending the subsidy for early childhood education to
two year olds. Currently, the subsidy is only for 3
to 5 year olds. It will drop down to cover
two year olds and so will provide some much needed
(07:39):
assistance to parents with very young children, allowing them to
return to the workforce earlier should they choose to do so,
which is good, obviously good for the the country's productivity.
There's the government's going to remove the $5 prescription charge,
which we've all had to pay for many years from.
(08:00):
From my recollection, that will be removed in this budget.
And that's obviously not targeted because everyone's eligible for it.
But it is progressive in the sense that those with
the most critical health needs, the higher health needs who
need more prescriptions than other healthier people will benefit the most.
(08:22):
So it does seem to be a sensible measure. There's
some subsidies and public transport which will be of interest.
So free public transport for children under 13 and permanent
half price fares for people between 13 and 25. So
for a number of years now, we've had free public
transport for the national superintendence and this is looking at
(08:46):
the other end of the demographic curve and extending that
free program to under 13 year olds help those who
travel by public transport to school or around the urban
areas and rely on public transport. It's also a sound
measure from an environmental environmental perspective, obviously. And then obviously
(09:07):
for people like tertiary students or young people who are
in work who need to rely on public transport or
rely on public transport, this is a good outcome for them.
And for when you think about it, for a family
with a few children travelling to school by bus or
for tertiary student families with, you know, several tertiary students,
this is a really good way of cutting their weekly costs.
(09:31):
So that will be helpful. Um, you'll recall a couple
of years ago we had the winter energy payment, which
was a payment that went out to a broad group
of people, including all national superannuation funds. It was effectively
a lump sum payment spread over a few months to
cover people's winter energy costs. It wasn't targeted and even
(09:54):
wealthy people, people who didn't need the subsidy, were receiving it. And. WHEREAS,
Now with this budget, the government has chosen to be
more targeted. It's going to fund 100,000 new heating and
insulation retrofits and an interestingly 5 million LED light bulbs,
both of these aimed at reducing the power bills of
(10:14):
those that are most in need. So we think the
more targeted approach is sensible. One obvious question is whether
we have the workforce to do the retrofits, the heating
and insulation retrofits. One thinks that it might well be
the same workforce that has been relied on to do
a lot of the cyclone recovery work. So that will
(10:34):
be that will time will tell whether we do have
the workforce to do those retrofits. One other change here
under this cost of living area and the cost of
living area was we tweak to the KiwiSaver rules that
it will ensure that Kiwisavers who are on parental leave
won't miss out. They will not be disadvantaged by being
(10:56):
on parental leave, so their long term savings through KiwiSaver
will not be affected. And that's from a gender equity
perspective as a really good change. It's not a big change.
It won't cost the government that lot, but it does
send a very positive signal that that gender equity as
is and savings. And there's very good research which confirms
(11:21):
that women end up with with lower retirement savings than men.
And this will be a way of helping address that.
So as I say, we're pleased that the cost of
living measures are largely pretty targeted and they're not. You know,
that is sensible and the constrained economic circumstances that the
government and we are all in at the moment. There
(11:43):
isn't money to spray around as there was in COVID.
And as I said, with last year's cost of living payment,
it has to be targeted.
S3 (11:53):
Right.
Daniel Webster, Host (11:55):
There wasn't meant to be any major tax changes. They
ruled those out. But was there something?
Peter Vial FCA, CA ANZ NZ Country Head (12:01):
Well, there was something. Daniel But I'll save my breath
for a second before talk about something and just talk
about what? There wasn't. So and that was no surprise.
There weren't any changes to the personal marginal tax rate
or the personal marginal tax rate thresholds. No change to
take GST off food. All of those have been ruled
out by the Prime Minister, the Minister of Revenue and
(12:23):
others before the budget. So no surprises there. Also, no
wealth tax, no capital gains tax. We might see something
in Labor's policy leading into the election, but certainly nothing
in the budget. Again, no surprises there. Of course many
people are struggling with the effects of bracket creep whereby
(12:44):
their incomes are pushed into, their incomes increase, but they
don't get the full benefit because they're pushed into the
next marginal tax rate bracket. That's been a problem that
we've had for decades. It's been particularly acute in the
last few years with wage inflation. So people who are
on average incomes are paying tax at reasonably higher rates.
(13:06):
So in an ideal world we would have seen that
problem tackled. But those changes are very expensive and they
just aren't affordable in the current environment with the pressures
of the cyclone and flood relief and and also they
would be inflationary potentially. So they're off the table and
we knew they were off the table. So we haven't
got any of that. But what we have got is
(13:29):
a little surprise in there with the tax, the trustee
tax rate. So the trustee tax rate has for a
number of years been 33%. This government and this budget
has announced that it will move the trustee tax rate
from 33% to 39% to align with the top personal
marginal tax rate of 39% that came in from 1st
(13:49):
April 2021. Why is the government doing this? The government
is doing this because it has identified a loophole and
the evidence is very clear. The budget documents confirm that
in the first year of the increase in the to
the 39% for the top personal marginal tax rate, there
(14:10):
was a sudden spike in income earned by trustees. So
trustees were earning $5.7 billion more of income in that
year than they had in the previous income year. So
that was the evidence the government needed to to show
that there was a loophole and it was being used or,
you know, in their view, abused. So that is that
(14:31):
opportunity has been removed with effect from one April 20th, 24.
Those rates will be aligned. Personally, I was very pleased
to see or hear Minister Robertson announce that that change
will go through the select committee process. So there will
be the opportunity for submissions, one assumes, and that will
(14:52):
be reviewed by the the finance and Expenditure Select Committee
as normal tax change naught tax changes normally are. There
could well be, you know, peripheral issues, there could be
collateral damage, things that officials perhaps haven't thought about that
need to be brought to their attention and to the
Government's attention to Parliament's attention. So those things can be
(15:15):
ironed out through that select committee process. But the key
change here is that the trustee rate will move to 39%
to align with the top personal marginal tax rate. A
few other things I should have mentioned that weren't in there.
There had been some kind of scuttlebutt or gossip about
whether the government might introduce a higher personal marginal tax
(15:35):
rate to apply to very high incomes of, say, 45%.
That's not in the budget. Again, it could come through
in the election policies of different parties, the Labor Party
and obviously might consider that. And it's and it's in
the lead up to the election mentioned. I think there's
no decision to remove GST off fresh food. Often there
(15:59):
are calls for that and particularly in times of economic pressure,
there are calls for that to happen to reduce the
food bill for households that are struggling. I think it's
the right thing not to go down that route because
New Zealand has the most efficient GST system in the world,
according to the OECD, and that's been the case for decades.
(16:24):
It's a very comprehensive tax. It's hard to avoid and
relatively easy to comply with and we don't have all
the definitional issues that come when you start to make
further exemptions and exclusions. And also fundamentally, there's no guarantee,
excuse me, that of GST were taken off food that
(16:45):
that would that price reduction would flow through to the
end consumer. So great to see the government resisting the tax.
To do something in that area. So yeah, so that's
what's happened in tax one. One little surprise and no
big surprises.
Daniel Webster, Host (17:03):
Yeah, a lot left out there.
S4 (17:05):
That will still be on the table for future discussions.
Daniel Webster, Host (17:08):
There were signals that small business wouldn't get much. That
was that was the expectation. Was that true on first blush?
Peter Vial FCA, CA ANZ NZ Country Head (17:18):
Certainly on first blush, there's no significant direct support for
small business. So, you know, measures that are specifically targeted
at small business generally, small business, there will be implications
for small business, for example, And all the money that's
being invested in resilience and recovery from the cyclone and
(17:38):
the floods that will have some flow on effects for
those small businesses affected by those events and also the
small businesses that support or work with those businesses affected.
But they did. The government, interestingly, the government did pick
one winner here in the small business area. They've decided
to give the gaming development sector. So video gaming entities
(18:01):
or companies a businesses, a 20% rebate for video game
development studios. So the sector brought in $400 million in
revenue in 2022, and it's growing rapidly. I understand it's
quite a big sector. And the Wellington region, for example.
And so they've been a winner out of this. They've
got the support, the support aligns the New Zealand treatment
(18:25):
with or puts them on a more level playing field
with this kind of support and subsidy that the Australian
equivalent industry receives. So and they are competing on a
global stage for this. So it's great to see that
this has happened for them. But the bigger question or
the obvious question is what is being done to support
(18:45):
other sectors that are made up predominantly of small business,
like the video gaming sector? They might not be as
sexy as the video gaming sector, but they are making
equally important contributions to the New Zealand economy and are
also having to compete with global competitors, including for for labour,
just in the same way as the video gaming sector has.
(19:05):
So what I'd like to see is if the support
for the video gaming sector is successful and does that
grow that industry and give a decent return on investment,
then that should be a model that's looked at to
see whether it can be rolled out to other sectors.
Some of the other sectors that are interesting here are
(19:26):
tourism and horticulture, for example, got relatively small, pretty, pretty
small because support for technology development, for example, and their
sectors and innovation. So not a lot for them. And
they are big industries, really critical to New Zealand's economy.
So again, I say let's see how this gaming sector
support works and if there are lessons to be learned
(19:48):
there that can be and the money's there to roll
them out more widely, then then the government, the government
should should go for it. There is a focus on
technology and science with $400 billion invested in some sorry,
400 million invested in several multi institution science hubs. Again,
(20:10):
that's the type of investment that ultimately in the long
term will have ripple effects around the economy. The more
research that has done in those science hubs that's commercially
that can be commercialized, the better and there'll be flow
on effects for small business and and the hubs around
those or the networks, the clusters around those science hubs.
So that's that's a sizable investment.
Daniel Webster, Host (20:34):
Okay, Peter. Well, that's all we've got time for today.
To all the listeners out there, if you want to
know more, Peter's full perspective is on our 2023 budget
page on chartered accountants ANZ. And you can check out
a recording of our Sharing Knowledge session that will also
be up there. So thank you for joining us, Peter.
Peter Vial FCA, CA ANZ NZ Country Head (20:53):
Pleasure, Daniel, Good to talk to you.
Daniel Webster, Host (20:54):
Yes, and bye for now.
Peter Vial FCA, CA ANZ NZ Country Head (20:56):
Ka kite ano .
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