While there seems to be an appetite amongst many of our country’s leaders for more fundamental tax changes, these are likely to become major election topics later in the year, giving voters a greater chance to dictate the direction of our nation’s tax policy.
Trustee tax rate
The main tax headline for Budget 2023 is a move in the trustee tax rate, from 33% to 39%, with effect from 1 April 2024.
Finance Minister, Hon Grant Robertson described this move as closing a “loophole” by aligning the trustee tax rate with the top personal marginal rate. He went on to say this is an integrity measure, preventing higher income earners from using trusts to minimise tax liabilities, adding that 78% of New Zealand’s trust income, is earned by only 5% of trusts.
For the remaining trusts registered in New Zealand (approximately 380,000) many of which are small family trusts, this will feel like a significant tax increase. Trusts with beneficiaries earning less than the top personal income band of $180,000 will now have a tax incentive to distribute income annually to beneficiaries, and pay tax on that income at their lower personal rates.
There are two minor exceptions to this new higher rate. For estates where the assets are distributed within 12 months of the date of death, and for trusts established for the benefit of disabled persons, the trustees will be able to apply the beneficiary’s marginal rate to the trustee income.
Game developer’s rebate
A rebate based on 20% of eligible expenditure for game developers is an incentive that has been lobbied for by the industry. The Government’s implementation of this is likely a response to similar schemes in Australia. This is a lucrative and growing industry in New Zealand, and the Government wants to ensure that we continue to be an attractive location for these companies to operate.
Cost of living package
As expected, a large focus of this budget was around the financial pressures being faced by New Zealanders in their day-to-day living costs. Initiatives in this area included:
- extra funding for early childhood educators and for ECE and care service teachers
- extending 20 hours free childcare to two-year olds
- adding Kiwisaver payments for those on paid parental leave
- free or half price public transport for younger New Zealanders
- continued funding for free lunches in schools
- scrapping of the $5 prescription fee on publicly funded medicines.
- more money for Warmer Kiwi Homes, which subsidises heating, insulation, water heating, and lighting for many NZ homes.
Other key highlights
A few of the other areas where the Government is committing to allocate money under this budget package include:
- Cyclone recovery: Additional funds for the previously announced recovery package.
- Infrastructure and housing: Including committing to an additional 3,000 more public housing places by June 2025.
- Science and technology: Including three research and technology hubs in Wellington.
- Climate: $1.9b from the Climate Emergency response fund will be spent on various initiatives related to emissions reduction or climate change adaptation measures.