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Budget 2022: Tax remains in the backseat

Tax-light budget says more by what is not there

The last few Budgets have been light on tax announcements, with the last significant announcement relating to the introduction of a Research and Development Tax Credit Regime way back in 2018. That said, it feels like tax has barely been out of the headlines over the last 12+ months and with the fatigue of dealing with numerous tax changes, it's a welcome relief to continue the trend of a tax reform-light budget.

While major reform was missing, there were a few tax related tidbits buried in the detail of the Budget documents for businesses to be aware of:

  • The Revenue Strategy of the Government remains largely unchanged from prior years, with a continued commitment to focus on ‘fairness’ of the tax system, continued work to ensure taxpayers are not avoiding the top tax rate, and a continued commitment to work with the OECD to combat international tax issues.
  • Positively the Revenue Strategy also states that “tax settings will continue to be broadly stable and predictable” and “The Generic Tax Policy Process shall be used to develop and consult on tax policy where practicable.”
  • Forecast financial statements predict that total tax revenue will increase from $97 billion in 2021 to $137 billion in 2026.
  • Inland Revenue has received additional funding to retain up to 240 full-time equivalent employees to continue to support the response to and recovery from COVID-19; this includes addressing unfiled returns and supporting customers to get tax obligations right from the start.
  • On-going funding has been provided to Inland Revenue to continue to administer the Research and Development Tax Incentive (RDTI). This funding will allow for 35-45 employees to review RDTI claims.
  • With the completion of Inland Revenue’s Business Transformation programme, Inland Revenue will be handing back $269 million of prior capital and operating funding.
  • The Budget provides estimates of the additional tax revenue expected from last years change to interest deductibility for residential property. Additional tax revenue in the 2022/23 year is expected to be $200 million, rising to $650 million in the 2025/26 tax year once the phase out of interest deductions has been completed.
  • New Zealand Customs is getting additional funding to counter tax evasion from tobacco smuggling.
  • ACC has received additional funding the undertake the preliminary work to establish the systems and operational processes for the proposed New Zealand Income Insurance Scheme (NZIIS). The Budget states the scheme will be operational in 2024. The forecast financial statements show forecast income insurance levies of $1.1 billion and $4.7 billion in 2025 and 2026 respectively (this compares with regular ACC levies of $4.1 billion and $4.5 billion in the same periods).
  • The tax system will be integral to the implementation of the new “cost of living payment” which begins from 1 August 2022. This $350 payment, to individuals earning less than $70,000, will be based on tax information for the 2021/22 tax year, and therefore is likely timed to coincide with the completion of Inland Revenue’s “auto-calc” process and the 7 July 2022 tax return due date for taxpayers without a tax agent. The payment will be administered by Inland Revenue.
Personal tax cuts

Despite having economic merit and a history of being supported on both sides of the political divide (as well as with taxpayers), the Budget did not adopt the (current) National Party tax policy of inflation indexing personal tax bands.

Budget junkies may recall that in Budget 2005 the late Sir Michael Cullen announced a series of tax cuts intended to take effect from 2008 – 2012 to deal with inflation. However, those changes were deferred in Budget 2009 and ultimately repealed by the National Government when they instead opted for more substantial rate reductions.

With the exception of the 39% tax rate, there have been no changes to these rates since 1 October 2010 (noting that Budget 2017 had proposed changes, but these were repealed in December 2017 with the change of Government). Forecast financial statements show total tax on individuals growing from $45.8 billion in 2021 to $68 billion in 2026. 

Business tax relief

While the lack of further taxpayer unfriendly tax changes will be a relief, there was nothing in the Budget for businesses to reduce compliance costs or incentivise economic activity. Businesses still coming out of the cloud of COVID-19 would have hoped for some additional support however, it was not to be. A number of businesses had been hoping for an extension to the tax loss carry-back rules however, this seems to be officially relegated to the history books. It’s important to note that some of the COVID-19 tax support announced in 2020 is still available for taxpayers.

While Budget 2022 was not short on handing out money to various causes, none of it is being handed out through the tax system. Some of the announcements around co-funding investment in environmentally friendly assets have already been labelled as corporate welfare and paying taxpayers to make investments they should have already been making. An alternative approach could have been to adopt concessional tax depreciation rules for investments in clean technology. Accelerated depreciation deductions cost the Government nothing but the time value of money and could have provided the additional upfront tax saving to make a marginal investment viable without having taxpayers provide a direct subsidy.

The Budget provided nods to the expected implementation of the proposed New Zealand Income Insurance Scheme (NZIIS) and we expect more official confirmation of the shape of the NZIIS in the coming months. The Budget did not invest in alternative solutions to future employment shocks. In contrast the Australian Budget released earlier this year introduced an immediate “super tax deduction” of 120% for businesses who invest in providing training to staff. Having a skilled and adaptable workforce is more ambulance at the top of the cliff to the NZIIS’s ambulance at the bottom of the cliff approach.

Fringe Benefit Tax (FBT)

Businesses may have been hoping that the climate focus in Budget 2022 could have resulted in a correction to the high FBT cost of businesses investing in electric vehicle (EV) fleets. This was not forthcoming in Budget 2022, which is a shame as business investment EVs would result in a stronger second-hand market for EVs.

The personal tax rates remain as:
The personal tax rates remain as:

$0 - $14,000


$14,001 - $48,000


$48,001 - $70,000


$70,001 – $180,000


$180,001 +


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