by Nick Stewart
Consensus on this year’s Budget? Boring, and inflationary.
Boring in the sense that there were no flashy announcements. Rather than taking a big bang approach, the Government has taken a sprinkler approach; a bit here, and a bit there… and still adding up to quite a significant bill we’ll have to deal with at some point.
In terms of expectations vs reality, tax didn’t quite go the way expected; many would have been hoping for an announcement of the first $5-10k of income becoming untaxed (which would have helped all New Zealanders but especially low income earners). Others were waiting to see if we would end up with tax changes geared at the top earning New Zealanders, following recent headlines sensationalising unrealised earnings.
What we’ve ended up with is extra tax on Trusts. It won’t make much revenue, and it doesn’t make much sense.
The idea of clamping down on a Trusts tax dodge – as implied by Revenue minister David Parker – is laughable. The admin and cost of running a Trust annually already outweigh tax benefits for most. In New Zealand, Trusts are mainly used for asset protection – not income protection. Particularly intergenerational assets. Raising trustee taxes from 33% to 39% is likely to impact more mum-and-dad types than moguls. It’s a game of whack-a-mole that will penalise SME-business owners who own their family business via a family trust. For the uber wealthy, this change will just see capital retained within companies at the much lower company rate of 28%. [i]
If anyone had been playing a drinking game with the number of times the word “resilience” was uttered, they would have been inebriated after the first ten minutes.
The cyclone recovery, infrastructure and “National Resilience Plan” (there’s that word again) are an expected and welcome allocation of funds to recovery efforts from Cyclone Gabrielle and the Auckland flooding. If adhered to, the promise for this to be locally led is also very welcome – and needed.
Other items in the Budget are aimed at making life easier for under 25s, parents, and certain vulnerable members of society. The commitment to extended early childhood education (ECE) funding, free transport for kids and half-price transport for under 25s, and the elimination of the $5 co-pay fee on standard prescriptions may save a few dollars for people.
The catch? Well, there’s also going to be an increase on fuel tax. If you don’t live in an area with sufficient public transport, or you can’t afford an EV to be part of the shiny new network expansion, you will be stung badly when fuel tax increases 29 cents per litre from July 01. For those previously lucky young people and parents, that money they saved on bus fares and childcare might go right back out. For everyone else… well, it’s just more out of the wallet in a time where every penny helps. This one is really going to hurt.
If you’re over 25 and childfree, this budget does not hold much for you despite being coined the “Wellbeing Budget”. It's an interesting strategy for Labour in an election year; to almost cut out ‘middle’ New Zealand entirely from any benefits, while they are feeling the pain of the cost-of-living crisis.
Far from trimming and reprioritising, the 2023 Budget is a preview into more inflationary issues for New Zealand. The debt figures are starting to look ugly, no matter how many times Grant Robertson says they are comparatively rosy next to countries like America or Australia. The return to surplus has been delayed by a further 6 months since the half-year update, now predicted to occur in the June 2026 year. While our debt is comparatively lower, it continues to rise – and as Christopher Luxon pointed out in his rebuttal, that debt has interest.[ii]
This Budget announcement suggests the Government remains optimistic about inflationary pressure and the return to normal. Time will tell whether their voters feel the same.
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 306.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] Budget 2023 – From the Beehive lock-up: What you need to know (Jordan Williams, New Zealand Taxpayers’ Union Inc.)
[ii] https://www.1news.co.nz/2023/05/18/analysis-labour-better-hope-middle-nz-forgets-budget-before-election/
