25 May 2017
Budget 2017 – “More responsible than a pure lolly scramble.”
Unsurprisingly for an election year, today’s Budget has something for everyone, says Peter Vial, New Zealand Country
Head of Chartered Accountants Australia and New Zealand.
“However, it is more responsible than a pure lolly scramble.
“It continues this Government’s focus on maintaining surpluses, reducing debt, growing the economy and supporting the
most vulnerable in society via targeted ‘social investment’ spending,” Vial said.
“Finance Minister Stephen Joyce’s first Budget achieves a balance between continued careful fiscal management and
sharing the benefits of sustained economic growth across the community.”
A tax reduction package will address the effects of tax bracket creep. Changes to Working for Families and the
Accommodation Supplement will assist low income families and renters. Low and middle income New Zealand was clearly
going to be in the Government’s sights but the tax package applies to almost everyone.
Vial said it was a responsible Budget. “It signals surpluses for the next four years (starting at $2.9 billion in
2017/18 and rising to $7.2 billion by 2020/21) and reductions in net Government debt.”
He said it was also a fair Budget. “It certainly provides most working New Zealanders with a tax cut. It also signals
continued commitment to social investment and that is laudable, but does it have a real plan for reducing inequality and
But he questioned whether it was a bold Budget. “It lacks bold ideas. For example, out of the box thinking for enhancing
our skill base, decongesting our urban road network, reducing our prison population and addressing widely acknowledged
housing supply and affordability issues.
“The Government has now ‘got’ the money and is expecting to do so for the foreseeable, so what is it spending it on?
Principally, tax reductions, debt repayment, and infrastructure (including roads, rail and housing) and of course
education, health and welfare.”
“It’s no surprise that Steven Joyce has included in his first Budget a $2 billion a year ‘Family Incomes Package’ that
includes tax reductions,” Vial said. “The Government has been teasing us with the prospect of tax cuts since 2014 and
now they’re here.
“Although it’s called a Families Income Package, it won’t be lost on anyone that the package benefits all taxpayers
earning over $14,000 (2.5 million Kiwis), including those without families to support.”
The increases in the bottom two marginal tax rate thresholds – from $14,000 and $48,000 to $22,000 and $52,000
respectively - will benefit everyone earning more than $14,000.
From 1 April 2018 a taxpayer earning $52,000 or more will have $1,060 more in the hand on an annual basis, or just over
$20 per week. A person earning $22,000 will receive an additional $560 a year or nearly $11 a week. The Government can’t
be accused of ‘chewing gum’ tax reductions – these are meaningful reductions that will make a difference for many
Vial said the fact that there are no changes to the top threshold of $70,000, or to the two top tax rates of 30 and 33
percent, means that middle income New Zealanders such as many nurses, teachers and police officers (including those
paying high housing costs in our cities) will continue to pay tax on some of their income at the top rate of 33 percent.
“This is inconsistent with the approach generally adopted internationally, whereby only high income earners pay tax at
the top rate.”
Net debt is expected to decline further to 19.3 per cent by 2020/21. The Government’s revised debt targets (net debt to
GDP ratios of 10-15 percent by the mid-2020s) are laudable and seem attainable, all going well. Paying down debt is just
as important for a government as it is for a household.
In a pre-Budget announcement Joyce confirmed an $11 billion boost for new capital infrastructure taking the spend to
$32.5 billion over the next four years, with $4 billion being spent this year.
“This sounds like a lot of money,” Vial said. “It is … but in reality we have decades of catching up to do.
“The most critical projects are being funded. By all means the Government should fast track these key projects but it
should also address basic infrastructure all around the country.
“Anyone stuck in Auckland or Tauranga traffic every day or tourists trying to drive in Queenstown will not be short of
suggestions for prioritisation of less ‘sexy’ but vital infrastructure. Different funding options need to be regularly
on the table.”