Budget 2016 focuses on reducing debt, health, IRD and science, 26 May 2016

Budget 2016 was delivered in the House by the Minister of Finance, the Hon Bill English, on Thursday, 26 May 2016. The Budget sets out the National-led Government's economic policies and plans for spending public money in the 2016/17 financial year.

The Minister said that the Budget 2016 invests in a growing economy and supports four significant measures. He said that the largest is the $761m Innovative New Zealand package to encourage entrepreneurship, skills and economic growth. The package has the following three parts:

• increasing investment in science and innovation by $411m over the next four years
• supporting skills and employment by investing $257m in more tertiary education and apprenticeship programmes, particularly in the areas of science, engineering and agriculture, and
• supporting regional economic development by introducing a series of initiatives worth $94m that will unlock business opportunities and benefit regional communities.

The other three significant measures are as follows:

• a $2.1 billion infrastructure programme that focuses on transport, schools, and the investment needed to deliver a modern flexible tax system
• a social investment package providing $652m more to support vulnerable New Zealanders and help them live better lives, and
• a significant investment in the health sector which will receive an additional $2.2 billion over four years to ensure New Zealanders continue to have access to high-quality healthcare.

Budget 2016 tax-related announcements

The Government's Budget 2016 tax-related announcements include the following:

Reduction in income tax

A reduction in income tax is cautiously foreshadowed over the next few years "if economic and fiscal conditions allow".

Inland Revenue's business transformation

$857m has been allocated to deliver a modern tax system. This funding will enable Inland Revenue to implement a multi-year, multi-stage change programme that will modernise New Zealand's tax service to make it simpler and faster for New Zealanders to pay their taxes and give more certainty that they will receive their entitlements. Funding for this programme is offset by administrative savings from within Inland Revenue's baseline and additional forecast revenue. This funding is in addition to the $187m SME-friendly tax package announced in April 2016.

Business-friendly tax package

The key tax measures in Budget 2016 were revealed by the Prime Minister, the Rt Hon John Key, in April 2016 in a pre-Budget announcement. Presented as a "business-friendly tax package", the announcement included the following:

• Reform of the provisional tax regime - removal of use-of-money interest (UOMI) for the first two provisional tax instalments, extending the safe harbour threshold from $50,000 to $60,000 and the introduction of a new "accounting income method" (AIM) that will allow taxpayers with a turnover of less than $5m to use their accounts to calculate and pay provisional tax monthly or two-monthly.

• Overhaul of the rules for schedular withholding payments - giving contractors the option of choosing their own withholding rate (while having a minimum 10% rate for resident contractors and 15% for non-resident contractors), bringing labour-hire firms within the net for withholding payments, and bringing in a voluntary option for contractors not currently covered by the schedular withholding rules.

• Removal of late payment penalty - the current 1% monthly incremental late payment penalty will be phased out in a staggered approach.

• Greater transparency - tax debt in serious cases will be disclosed to credit reporting agencies, and Inland Revenue will share information with the Registrar of Companies in cases where a serious offence has been (or will be) committed.

Other initiatives in Budget 2016

Other initiatives announced in Budget 2016 include the following:

GST on cross-border services and intangibles: Services and other intangibles provided to New Zealand residents by offshore suppliers, such as purchases of music from offshore websites, will be subject to GST from 1 October 2016. This is consistent with Organisation for Economic Co-operation and Development guidelines and international practice.

Non-resident withholding tax-related party and branch lending: A package of tax policy changes is intended to strengthen the Non-resident Withholding Tax and Approved Issuer Levy rules to help ensure that domestic borrowers and foreign lenders are taxed at a reasonable level.

Tobacco excise and excise equivalent duties: Budget 2016 increases tobacco excise by 10% on 1 January each year from 2017 to 2010, and excludes tobacco from consumers price index adjustments to welfare payments. These measures are intended to reduce smoking prevalence and help achieve the Government's goal of making New Zealand essentially a "smoke-free" nation by 2025. It is expected that these changes will raise $5m in 2016/17, rising to $280m by 2020/21.

New Zealand Customs Service: A Budget 2016 initiative will enable the New Zealand Customs Service to reshape, build and retain its operational workforce to manage future demand from increased volumes and changing risk profiles of trade and travellers crossing New Zealand's border.

The Finance Minister also referred to:

• New Zealand's recent signing of an international agreement that increases information sharing between the revenue authorities of 39 countries
• the current "John Shewan" review of New Zealand's foreign trust regime, and
• the continuing work to address tax avoidance issues that New Zealand is carrying out as an OECD member.

The Fiscal Strategy Report noted that the current tax policy work programme focuses on three areas:

• using Inland Revenue's business transformation programme to modernise policy and tax administration settings
• dealing with issues relating to international tax and base erosion and profit shifting, and|
• improving and enhancing tax and social policy within the Government's broad-base, low-rate tax framework.

Source: www.treasury.govt.nz/budget/2016