Budget 2021

A Budget focused on welfare, families, housing and infrastructure, with a nod to climate change and the health sector. The government's better-than-expected books mean the operating allowance is more positive than forecast. What's in Budget 2021 for business?

Time to read: 3 mins

Infrastructure investment welcome

We're delighted to see the government allocate an additional $15.1 billion to infrastructure, including rail and hospitals, which is something our Pre-Budget Election poll respondents had put at the top of their list. Infrastructure investment is key to getting our economy back on track and ensuring better health outcomes. Health investment was number two on the wishlist, so more funding for hospitals and Pharmac is welcome.

GDP growth expectations

It's reassuring to see that GDP is expected to grow 4.4% by 2023, returning to pre-COVID levels, and that the government expects a budget surplus by 2027. In our poll, 60% of businesses had wanted to see debt levels reduced, so there will still be some nervousness about any increase to spending, but having an end date in sight to the increases in for our national debt will be good news for many, as it gives us some reassurance that this won't be an insurmountable intergenerational burden will be good news for many. This is also similar to the timeframe many were expecting for a COVID recovery, so this will come as a pleasant surprise.

Some interesting tidbits

Among the investment in infrastructure is a $44 million Small Business Digital Training, Advisory and Support programme. The goal of this programme is to supply digital skills training to 60,000 small businesses, a digital business advisory service to assess digital needs and to enable the creation of bespoke digital business action plans. Ultimately the devil will be in the detail, but we would hope this would give many small businesses the boost necessary to more fully engage with the modern digital economy.

The only new tax enforcement spending announced is $5 million over the next two years to collect information on the level of tax paid by high-wealth individuals and their related entities. At the same time there is a budgeted $10 million reduction in spending on Inland Revenue investigations, and a budgeted $6 million decrease in management of tax debt and unfiled returns. Since 2019, there has been a marked decrease in Inland Revenue activity and it concerns us that dishonest taxpayers will try to exploit this perceived weakness at the cost of honest taxpayers. One possibly political message that could be read into this is that high-wealth individuals are the priority targets.

Of some concern is talk in the budget speech of the development of a Social Unemployment Insurance scheme, with this being an ACC-style scheme. While on the surface it is a nice idea to have a scheme that would provide 80% of income for a fixed period of time to those unemployed, the concern is, firstly, the compulsory nature and, secondly, who will pay for the contributions. Will it be employers or employees? Will it just be a stealthy way to effectively increase taxes? Such schemes are commonplace in Europe and can result in double digit levies on incomes. More details are expected later this year.

Lack of tax innovation continues

No one can argue with the general goals of the Budget to address poverty, inequality and housing affordability. However, the Government is missing the opportunity to create more equal outcomes for those in lower income tax brackets, such as pegging the tax thresholds to wage inflation. More innovation around our tax structures would have been welcome. Businesses will be pleased to see no further taxes introduced for employers at this stage, although there will be concerns around where the funding for a proposed Social Unemployment Insurance scheme comes from. The challenge for the government now is to deliver on its promises and see the new infrastructure through to completion, and let's hope to see our income tax brackets revisited in future.


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