Budget 2013

 

As usual at Elevate CA on budget day it’s all ears on the live stream as Bill English reads Budget 2013.  Here are our first impressions and some initial comment around the tax and business related aspects of Budget 2013 …

2:07pm

Bill English is explaining the theme of his fifth Budget 2013.  We are hearing that our economy grew by 3% last year roughly in line with Australia – and well above most of the developed world. Budget 2013 is being pitched as all about building the momentum that has already been well established.

2:15pm

“Back to surplus by 2014 /2015” has been the mantra since the government returned to power in 2011. We are hearing that the country is still on track to achieve this target – and that it is also on track to reduce government debt to within 20% of GDP by 2020.

No surprises so far.

2:20pm

NZ Super fund contributions will be suspended until government debt is within 20% of GDP.

This seems prudent to me. After all, a business or household probably wouldn’t invest borrowed money into the international share market. Such a strategy seems to make little sense for the government either.

2:21pm

Mr English is telling us he is now satisfied there is scope for significant and sustainable reductions in ACC levies – and that the budget makes allowance for levy reductions of around $300 million in the 2014 / 2015 year.

This seems politically necessary – there has been a groundswell of discontent for the way ACC funds its future claims liabilities from current ACC levies, and this seems to be an area where the government could come under some justified attack between now and the next election.  Addressing this now seems a prudent move.

2:22pm

Mr English is announcing a $100 million-a-year internationally-focused growth package – the largest part of which seems to be a boost in funding for science, innovation and research. Specifically Mr English is explaining this will involve an expansion of business R&D grants, as well as establishing a new repayable grant for start-up businesses to assist them to become investment-ready. There is also new funding for the National Science Challenges and the Marsden Fund.

Thank you Mr English. This is a no brainer. In the USA, federal and state governments bend over backwards to help their entrepreneurs with support and cash. For example, the federal government doles out US$100 million each year to provide funding to early stage ventures too risky for private investors. I know our government’s pockets are not as deep as its American counterparts, but we do rely on our innovators to improve the country’s fortunes over the long term.

2:24pm

Mr English is picking a couple of sectors for specific government assistance including an investment of $158 million over four years to attract more high spending visitors to New Zealand. The growth package also includes additional funding of $40 million over four years to market and promote New Zealand’s international education sector.

Picking winners is not typically part of the modus operandi at our government’s end of the political spectrum.  But for example the international education sector already contributes more than $2 billion to our economy each year, so assisting industries such as this seems to me a no-brainer.

2:25pm

Mr English proposes letting loss-making start-up businesses claim tax losses on R&D expenditure

Thank you Mr English.  The current policy of not allowing a deduction on much R&D expenditure seems counterproductive for a country that needs its businesses to innovate, so this proposal is long overdue in my humble opinion.

2:26pm

Changes are being discussed to the thin capitalisation rules which will in theory increase the tax takes from multinationals doing business in NZ

This is politically prudent – although it remains to be seen how effective it will be. There has been recent outrage amongst Kiwis over the amount of tax multinationals like Google and Facebook pay in New Zealand given the revenue companies such as these generate from their New Zealand activities. Will this significantly increase the tax take from multi-nationals doing business in New Zealand? Maybe not – but the government does need to be seen to be taking some action here.

2:27pm

An additional $7 million funding for the IRD’s property compliance programme. It is expected that this will return $45m pa in additional tax revenue.

So a 645% return on investment? This seems like a no-brainer from the government’s point of view. But these property compliance audits can drag on interminably and create major stress for those under the spotlight. I would implore the IRD to invest some of these funds in completing these investigations in a timely manner to reduce the massive stress and uncertainty on the real Kiwis who are the subject of audit.

2:29pm

Regarding asset sales, Mr English plans to invest the $1.5billion raised from the sale of Mighty River shares on redeveloping Christchurch and Burwood Hospitals, new schools, Christchurch’s justice and emergency services precinct, Canterbury tertiary education institutes, school network upgrades, upgrading KiwiRail – and for irrigation infrastructure. Meridian Energy will be the next company to be prepared for a partial share offer later this year.

Love them or hate them, these partial asset sales are proceeding – and I’m sure Kiwis will be somewhat appeased when we start the see some real tangible fruits of these asset sales.

2:32pm

Re the overheated housing market, Mr English is announcing powers allowing the Reserve Bank to require banks to hold additional capital on their balance sheet as a buffer – and to restrict high loan-to-value ratio lending in the housing sector. We already knew this from an announcement earlier in the week.

I’m fairly sure the rampant housing market is more to do with a lack of housing supply than with aggressive lending by the banks. I predict this will have absolutely no effect – except perhaps to shut some first home buyers with small deposits out of the housing market.

2:40pm

Whilst outside the scope of my comment here, Mr English is announcing new targeted spending including in early childhood education, school operational grants, the healthy homes programme, rent subsidies, aged care and dementia, elective surgery and a proposal to pay family members who care for their disabled adult children.

I applaud this spending. Prevention seems to me to be 90% of the cure for social ills, so any funds invested in early intervention preventing poor outcomes for Kiwis is good by me!

All in all a positive but predictable budget in my humble opinion.  Feel free to comment below …