Guest Post: Budget 2024 Roundup: What you need to know

A guest post/analysis from the Taxpayers’ Union:

Income Tax:

The government intends to reduce income taxes by adjusting tax brackets upwards slightly. This is how the changes would look: 

Current brackets $	New brackets $	Rate
0 – 14,000	0 – 15,600	10.5%
14,001 – 48,000	15,601 – 53,500	17.5%
48,001 – 70,000	53,501 – 78,100	30%
70,001 – 180,000	78,101 – 180,000	33%
180,001 +	180,000 +	39%

These changes would see the average earner on $66,196 paying around $15.30 less tax each week. This is topped up by an additional $10 a week with the Independent Earner Tax Credit being extended to anyone earning less than $70,000.

The income tax changes only return taxes to 2021 levels. 

There has been no commitment to regularly adjust tax brackets for inflation meaning ongoing stealth tax hikes will continue that see workers paying an increasingly high proportion of their income in tax. 

Key New Spending Initiatives: 

• $1.8 billion more for Pharmac to fund drugs
• $14.9 billion more for hospitals and health providers
• $2.7 billion more for schools
• $270 million more for tertiary education providers
• $190 million more for early childhood education
• $570 million more for the NZ Defence Force 
• Continuing $2.6 billion of climate change initiatives previously funded from Emissions Trading Scheme revenue.
• $1.1 billion in additional disability funding
• $1.2 billion Regional Infrastructure Fund
• $650 more for the police
• $181 million more for film and TV subsidies, along with a continuation of the gaming subsidy

New Revenue Initiatives 

• Removing the ability for the ability to deduct depreciation as an expense on commercial buildings – $580 million per year
• Taxing online casino operators – $50 million per year
• Increasing immigration levies – $130 million per year
• Digital Services Tax – $320 million over three years from 2025

Key Fiscal Indicators:

• Core Crown Expenses are expected to be $138.3 billion for the year from 1 July 2023 to 30 June 2024. This is up significantly from $127.5 billion the year prior. Core Crown Expenses are expected to continually rise to $156.3 billion 2028 but will shrink as a proportion of GDP after this year as economic growth boosts the economy as a whole. 
• Net Core Crown Debt is still on the up with no sign if it dropping in the forecast period. By June this year, it will be $178 billion and by 2028 it will reach $209 billion. 
• The Government isn’t projecting a surplus until 2028 where it is projected to be just under $1.5 billion. For the next two years, the government deficit will be larger than under Grant Robertson’s final three years as Finance Minister. 

Analysis:

Any hopes of unwinding the eye-watering growth in spending under the rein of Grant Robertson are long gone. Nicola Willis’s Budget today is promising to spend more both in real terms and as a proportion of the GDP. 

The Government has included in its tax relief the Independent Earner Tax Credit in its tax calculator to pump up the amount those earning under $70,000 will earn, without the financial cost of reducing taxes for those on higher marginal tax rates. 

Nicola Willis was careful to emphasise the fact that David Seymour played a significant role in identifying savings. This is likely an attempt to placate the ACT leader who no doubt would have wanted the Government to go further and faster in cutting spending. 

New Zealand First’s $1.2 billion Regional Infrastructure Fund will be a big win for their base. Framing the fund as one focused infrastructure investment appears to be attempt to differentiate it from the Provincial Growth Fund when the party was last in Government which saw widespread criticism as being a ‘slush fund’.

The continuation of corporate welfare in the film and gaming sectors will be a bitter pill to swallow for ACT who have campaigned against handouts to special interest groups. The funding is time limited until June 2026 to, presumably to keep the door open to scrapping it at a future budget. 

The increased investment in a number of areas like Pharmac, health and education will largely go down well, but for some targeted criticism where the increases in certain areas is less than had been forecast, even if not funded, by Labour.

Overall, there won’t be too many who are happy with today’s Budget. Those on the left will criticise the Government for the scale of the cuts while those on the right will condemn the projected increases in spending and debt for not going far enough. 

DPF: Just adding my 2c on, I think when both sides are unhappy, that shows the balance is not bad. Willis has delivered the first tax cuts in 14 years, and the first significant backroom spending cuts in many years, which are both significant achievements. Unfortunately the inherited structural deficit and recession means that the tax take is well down, and the deficit and debt tracks are higher than desired. This means that fiscal restraint can’t just be for this budget, but ongoing.