BUDGET 2016: Big tax increase for smokers, but otherwise no surprises

There were no real tax-related surprises in the Budget, says Massey University tax expert Dr Deborah Russell, but smokers will be hit in the pocket.

The excise on tobacco will go up by 10 per cent in each of the next four years increasing the cost of a packet of cigarettes from $20 to $30 by 2020.

“Reducing smoking is an excellent public health goal, but higher prices could create a black market in tobacco,” Dr Russell says. “This could undermine any pubic health benefit.”

According to Dr Russell, another tax increase comes with the removal of some of the subsidies in the emissions trading scheme.

“Up until now, businesses have been able to buy two emissions units for the price of one. This was a measure to help businesses following the global financial crisis.

“By 2019, businesses will be paying the full price for each emissions unit – and this is a tax increase for many businesses. Of course, some won’t be affected because they are excluded from the scheme – for example businesses that are exposed to international competition, such as primary sector businesses.”

The biggest tax item in the Budget, Dr Russell says, is more spending on IRD’s new IT system.

“Having a better system will make it much easier for taxpayers to interact with Inland Revenue. This will be good for individual taxpayers, and for businesses. Anything that makes complying with tax law easier reduces costs for businesses, both bottom line costs, and intangible costs.”

This Budget also includes some tax measures to help small and medium-sized enterprises. The measures were announced last month and include making it easier to pay provisional tax, and reducing or even getting rid of some penalties and Use of Money Interest.

“While the amount of SMEs pay won’t go down, the measures should reduce the stress of paying tax,” Dr Russell says.

While there was no hint of tax cuts in the Budget, tax revenue is projected to increase by about $3 billion in 2018 and 2019.

“The Prime Minister suggested there might be tax cuts in the future. Perhaps these were the numbers he was looking at.”

ENDS

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