Will tax changes rule the Budget?

Key announcements from Budget 2023

As predicted, Budget 2023 did not come with tax cuts for individuals. From a tax perspective, the only significant change – which will impact on a significant number of New Zealanders – is an increased in the Trustee Tax Rate from 33% to 39% with effect from 1 April 2024 – refer to our separate article for more detail.

Hidden in the detail of the Budget documents is a confirmation that New Zealand will be adopting OECD tax proposals (known as ‘Pillar 2’), these changes, as well as the Trustee Tax Rate change will be included in a Tax Bill tabled in Parliament today. This Bill will go through the usual parliamentary process and will be open to public submissions through the Finance and Expenditure Select Committee. Also announced today, in the detail, is confirmation that a new ‘Tax Principles Act’ is coming, with legislation also being tabled on Budget Day – refer to our separate article for more detail.

Pre-Budget insights from Deloitte’s Robyn Walker

It is somewhat of a tradition that an election year budget splashes more cash around to entice potential voters, but in 2023 we find ourselves in a bit of a quandary given the focus of the Government on controlling inflation. Despite this, there is a strong desire amongst the general population for tax adjustments for individuals, to at least rectify some of the ‘bracket creep’ that has occurred due to tax rates and thresholds being virtually unchanged since 2010.

However, the recent past has not been kind to Labour Governments who have offered tax cuts, and this may be part of the reluctance to consider them.

Tax cuts can be very expensive, particularly when they are applied to everyone. Sir Michael Cullen’s 2005 Budget (an election year) was nicknamed the ‘chewing gum budget’ after it was calculated that some taxpayers may be only 67c better off a week, in three years’ time.

The following election year Budget in 2008 made yet another attempt, but then got nicknamed the ‘block of cheese budget’ for offering $16 a week to an average worker. Incidentally, the cheapest possible chewing gum now costs around $1.40, but a 1kg block of cheese has only increased to around $19.00.
With the Government likely to want to avoid an unfortunate nickname for its latest Budget, it’s unclear whether tax cuts will be suggested and may instead be left for general electioneering later in the year. The Prime Minister and Minister of Finance have been dampening down expectations for tax changes in Budget 2023.

So, with that in mind, what do we know about what has been ruled in, ruled out, or potentially still on the table? The Prime Minister recently stated in a pre-Budget speech: “We set out our tax policy at the last election and we are sticking to it.” Taking that at face value, a number of options would appear to be well and truly off the table.

Here’s what we know to date and, if the below is accurate, Budget 2023 could shape up to be a very ‘boring’ Budget from a tax perspective… or else it might be very surprising with something completely out of left field. We will find out soon on 18 May 2023 and we will be sharing our insights into what did and did not feature in Budget 2023.