Today I'm going to talk to you about the Government Budget which was delivered yesterday, Thursday 16 May 2013. It's being called the Bland Budget because ultimately, it didn't really rock anyone's world. It's not an election year and so no real goodies were handed out to New Zealanders.
Background to the Budget is simply that the GFC and the Canterbury earthquakes have left our government with a large deficit which it wants to clean up. This Budget had that as one of its main objectives – balancing the books by June 2015. In addition, it wants to build up economic growth, increase jobs and bring debt down to 20% of our countries GDP by 2020.
Under the Budget, NZ's economy is forecasted to grow on average between 2 and 3 percent annually over the next 4 years. This growth is expected to come from low interest rates, increased activity from the Canterbury rebuild, strong commodity export prices and external parties demanding NZ goods and services. That's all good news because the spending the government is going to do under the Budget has to come from somewhere.
One of those somewhere places will be the proposed sale of Meridan Energy. The government was very successful selling 49% of Mighty River Power. It made $1.5b from this and has in part used these funds to further assist in the rebuild of Christchurch. The success of the Mighty River Power float has encouraged the government towards considering selling Meridan Energy, so expect more commentary about this in the second half of this year. You might also watch this space for comments in regards to the proposed sale of Crown holdings in Air New Zealand, Genesis Energy and Solid Energy.
Despite being a bland budget, it's aimed at being stimulus in nature. The government has tried to bring this about by different measures.
For instance, it is intending to reduce ACC levies on households and businesses up to the tune of around $300m in the 2014/2015 year, increasing to $1b in the 2015/2016 year. This will act like a kind of tax cut for households and businesses, thus giving some relief in direct costs.
There is also intended a tinkering with research and development laws with the aim of making R and D costs immediately refundable up to a certain level. At present, the losses these costs produce must be held until such time as a company produces a profit. This can deter companies from investing in innovation, thus limiting our economic growth. In an attempt to remedy this, new laws are proposed so as to encourage innovation within the economy.
Under the Budget the government is giving $158m to tourism in the hope that this spending will attract tourists into our country, which is expected to have the result of boosting our economy.
It's also going to channel $900m into education programs for early childhood, primary and secondary education so we grow the brains of future generations and make our economy stronger for it.
The health sector fairs well under this Budget, receiving $1.6b, which will be pushed into new health initiatives and used to meet the health costs arising from a growing population. We need to keep our people fit and healthy because ultimately, an unhealthy population drags our economic sustainability and growth downwards.
Finally, low income families are going to get some help with $100m being moved into important initiatives to help in areas such as housing and budgeting.
Of course funds have to come from somewhere and in this respect, the Budget saw the government give an extra $7m a year to the IRD for it to use to look at, in particular, land transactions. This is to ensure taxpayers are being compliant. The government are intending to introduce legislation around matters, such as dates of acquisition and intentions to make profits from land transactions. Don't get caught in this area. Ensure you obtain qualified structuring and tax advice before you undertake property transactions. No one wants a fight with the IRD and the way to avoid this is to have a suitable structure in place and know your tax obligations before you start buying and or selling your properties.
So what does the budget mean overall for you?
Well, if you're in tourism, education, welfare or the health sector, you're going to get a bit of a boost and probably more jobs will be on offer due to the government's intended spending.
If you're in business, you're getting a bit of a relief from ACC levies and immediate tax refunds on R and D. That should boost business confidence and hopefully a loosening of purse strings, maybe leading to more investment, employment and capital expenditure on the business' part.
If you're unemployed, your opportunities of getting work in any of the industries I've just spoken about have just increased.
And finally, if you're involved in property dealings, be warned – the chances of your affairs being reviewed have just increased and you need to ensure you are absolutely tax compliant.