Transcript of Kevin O'Connor interview with BDO Rotorua director Michelle Hill on Budget 2014

 

16 May 2014

 

Kevin O’Connor: Michelle, this has been called the family friendly budget for election year.  Any friendly moves in there for business?

 

Michelle Hill: Really, I don’t think there were any big surprises; it was really pretty much steady as she goes.  But it’s lovely there’re a few incentives there for business going forwards.  In terms of research and development, we’ve had a lot of very innovative entrepreneurs in the past that couldn’t really cash up their losses in terms of the money they had spent in research and development and this budget allows for that.  In fact, what they are talking about doing is providing a return of $58.1 million back into the economy by ways of releasing those losses back to those entrepreneurs which I think is really positive.  I think we need that in New Zealand; and certainly in Rotorua we want to see some innovation and new business going on there.

Also [there are] some ACC cuts that are going to occur over the next few years.  Certainly the largest proportion of that is going to be in motor vehicle levies.

 

KO: And that helps everybody.

 

MH: Absolutely.  It’s not just business but that’s everybody.  But there’s also something in there for employers and self- employed people as well, and those cuts are expected to take place over the next couple of years.  So yeah, those are really positive things I think.

 

KO: So the bulk of the spending and the new spending and increases are going into health, education and the whole social field – that’s going to be fairly important for Rotorua?

 

MH: Yes, definitely the health; certainly the under-13-year-olds now having free GP visits – that’s fantastic. I think that’s really positive.

We’ve also seen a fairly large lump of money being put into the Maori economy and I think again that’s a fantastic thing for Rotorua.  About $30 million has been provided - $15 million of that for whanau support-based activities and the other $15 million for Maori business development opportunities.  So this area, given the Maori that we’ve got in this area, will definitely benefit from that; so that was really positive.

 

KO: About a quarter of the Maori economy is based here.

 

MH: Yeah and anything that is based around families, and it was very much a family-based budget I think, mums and families are going to see a little bit more money coming back into their pockets in terms of assistance with children.  Certainly mother that have just had children, the relief that they will get or the money that they will get in terms of the new born children – they will get a tax credit now that goes from $150 up to $220 a week.  That’s a substantial increase that happens from 1 April 2015.  And the abatement process – I won’t get into the details, because it is too complicated – that’s also changed as well; that’s going to provide more money back into those low-to-middle income families, so that’s going to be really positive for here [Rotorua].

 

KO: Do you think, it’s going to increase both business and consumer confidence overall?  It’s very much a steady as she goes run up to the elections - some people are used to getting an extra little bit before the elections.

 

MH: I think we’ve had economic growth and they are still predicting for there to be economic growth, and in fact, they are predicting that’s going to go up to about 4 per cent [growth].  There’s been growth and certainly we’ve had good growth in New Zealand in terms of the OECD; we know we were in the top five [of the OECD] weren’t we. 

I terms of this particular area, I think it will provide more income, more disposable income in our local economy.  That has to be positive.  Maybe they never got it in terms of direct tax cuts but they’ve got it in another lot of other areas.  Like around the health and family support type areas, and what have you, so certainly business has got a bit as well.  So I think we will see that it’s been quite positive; we should see that there will be a little bit of an increase in consumer input and [positive] attitudes towards spending.

 

KO: Thank you, Michelle

MH: Thank you

Budget positive for business, families - Michelle Hill

BDO Rotorua director Michelle Hill says the government's Budget for 2014 released by Finance Minister Bill English will be positive for business and families.  She outlined her take on the Budget in an interview with The Mud's Kevin O'Connor.

Staying on Track

Predictability has value in a growing economy so getting what we expected with Budget 2014 underpins the Government’s commitment to staying on track – though there may be some tempters as the election year unfolds.

As expected, the Government’s focus is on delivering a return to surplus, with a forecast $372 million surplus in 2014/15 and increasing surpluses thereafter.   Net core Crown debt is forecast to reduce to 20 percent of GDP in 2019/20 at which time contributions to the NZ Superannuation Fund will resume.

Budget 2014 delivers no tax surprises, though the Prime Minister John Key has hinted at the possibility of tax cuts for middle-income NZ once the Government’s books are back in black. In his Budget 2014 speech, the Hon Bill English reiterated the Government’s priorities this term being:

  • Responsibly managing its finances

  • Building a more productive and competitive economy

  • Delivering better public services

  • Supporting the rebuild of Christchurch

 

Specific tax related announcements in Budget 2014 include:

  • Research & Development Tax incentives

  • Tax Compliance bolstered

  • Family Packages: - Parental tax credit boost- KiwiSaver auto-enrolment- Student loan repayment threshold frozen

  • Taxes and Levies:- ACC levy cuts- Cheque duty abolished from 1 July 2014- Duties and tariffs on building products temporarily removed

 

Innovation Boost: Research & Development Tax Changes

Two tax changes designed to encourage business investment in research and development (R&D) activities were included in Budget 2014.

R&D-intensive start-up companies are to be able to cash up tax losses arising from R&D expenditure; and​Deductions will be allowed for certain R&D ‘black-hole expenditure”.

To be fair these policy measures were announced last year and have already been subject to a round of consultation with Inland Revenue.

It contrasts with Labour’s announcement to introduce an accelerated depreciation incentive.

The new measures are expected to come into effect from 2015/16, but there is some relief from 7 November 2013.

Read more detail on these R&D Tax Changes

 

 

Tax Compliance

Budget 2014 allocates an additional $132.3 million over the next five years to Inland Revenue. $48.6 million of the $132.3 million is cash available for Inland Revenue to bolster tax compliance and to chase unfiled returns. This is $9.72 million of cash funding available in each of the next five years. The balance of $84 million is to cover the write down of tax that is unlikely to be collected.

The Government estimates that this new cash funding will generate $297.5 million over the next five years, giving a healthy return of $6.12 for each cash dollar invested.

Find out more about this funding

 

Family Packages

Parental Tax Credit: As part of a wider package aimed at families with new-born children, Budget 2014 announces an increase in the parental tax credit to help many lower and middle income families.

Student Loans: CPI adjustments to the student loan repayment threshold will be suspended until 1 April 2017. The threshold remains at $19,084 p.a.

Read the family budget package analysis here

 

Christchurch Rebuild

Budget 2014 increases Government contributions by $50 million  to $15.4 billion (including the Earthquake Commission contribution) towards the estimated cost of $40 billion for the rebuild. However this still leaves a significant amount of rebuilding and restrengthening costs that will need to be borne by the Christchurch city council and the taxpayer.

What does this mean for you?

 

Taxes and Levies

Cheque Duty Abolished: Cheque duty, which is currently levied at five cents per cheque, will be abolished from 1 July 2014. Tax revenue from cheque duty has steadily declined over the years as people move to electronic payments. Currently cheque duty raises only about $4 million a year, and removing it will cost $15.5 million over four years.

Further Cuts To ACC Levies: Budget 2014 announces that ACC is on track to deliver around $480 million of ACC cuts in 2015/16. The Government expects to make its final decision on ACC cuts after consultation, with the bulk of the cuts are expected to be to motor vehicle levies as well as a possible levy reduction for employers and the self-employed.

Read more about these and the changes to duty-free tobacco limits and building product duties and tariffs

 

N

NOTE

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact your local BDO member firm to discuss these matters in the context of your particular circumstances. BDO New Zealand Ltd, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

 

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©BDO 2014.

BDO Budget 2014 Analysis

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