Australian companies find opportunity in NZ
Amid the talk of economic headwinds and a tough operating environment for businesses in New Zealand,...
Minister of Finance Grant Robertson released the Government’s fifth budget today. The primary focus of the 2022 budget has been on health, with Government also attempting to provide a small amount of relief for middle-income households facing significant cost pressures at the pump and supermarket checkout. For business, the 2022 budget has been ho-hum, with nothing of any real substance.
Following on from the Government’s Small Business Cashflow Scheme, which provided small loans to struggling but otherwise viable businesses, the Government is setting aside $100 million to purchase minority equity stakes in small to medium sized enterprises. It is hoping this will enable potentially successful but otherwise capital-starved businesses to grow and succeed. The fund will be established alongside the banks. A less generous interpretation of this proposal would suggest the Government is “picking winners”.
Inland Revenue is to receive $154 million over the next five years to fund 240 full-time equivalent employees to address rising levels of unfiled returns and debt. This funding will also help Inland Revenue retain its existing staff. While the primary focus appears to be on unfiled returns and debt, we are expecting the days of Inland Revenue being the nice guy are fast disappearing as the practical impacts of the pandemic wind down. We consider it likely that once the backlog of unfiled returns and debt is addressed, there will be more interest in audits and risk reviews. One concern is that Inland Revenue has lost a fair amount of expertise over the past few years – expertise that will take many years to rebuild and could hinder effective investigative activity, harming both Inland Revenue and the business sector.
The Apprenticeship Boost Initiative, which was due to expire on 4 August 2022, will now be extended through to 31 December 2023 at a total cost of $317 million. This will mean the employers of some 14,000 existing apprentices will continue to receive support through to the end of next year. The government also noted 2021 saw a significant increase in apprenticeship enrolments. This is one positive element of the budget for businesses; New Zealand has a critical shortage of skilled tradespeople and any measure that helps boost the number of apprentices can only be positive.
With agriculture expected to enter the Emissions Trading Scheme in 2025, government is planning to invest $380 million over the next five years to accelerate development of greenhouse gas mitigation measures in the agricultural sector. This is expected to hasten research, grow capability, expand greenhouse gas measurement capacity, streamline the path to market and deliver demonstration programmes to ensure there are fit-for-purpose tools for use on the farm. In addition, $156 million in operating and $191 million in capital expenditure is expected to be spent on forestry over the next five years, specifically establishing long-term carbon sinks and using woody biomass to replace coal and other carbon-intensive fuels. With climate being an even more critical issue and our trading partners expecting action on this, moves in this direction are positive – New Zealand is good at producing food in a carbon efficient manner and this helps us maintain our position in this area.
The government is spending an extra $15 million over five years on administering the research and development tax incentive, with the hiring of an extra 45 full-time equivalent employees. This spend makes it clear the present Government is planning to retain the research and development tax incentive.
The other key items in the 2022 budget have been an increase in health spending of $11 billion over the next five years and a package to address the increasing cost of living.
To address the increasing cost of living, three payments, totalling $350, will be made starting 1 August to people earning less than $70,000 per annum who are not eligible to receive the Winter Energy Payment (broadly this is beneficiaries, superannuants and Community Service cardholders). This is expected to provide support to approximately 2.1 million New Zealanders. In addition, the 25 cent per litre reduction in fuel excise levies, equivalent reduction in road user charges and half-price public transport fares have been extended by two months – with the exception of people who have a Community Services Card. They will remain eligible for half-price public transport fares on a permanent basis.
The 2022 budget will be very disappointing for the vast majority of businesses. Businesses are facing some significant pressures as they struggle with increasing costs and difficulty in accessing suitably trained staff.
From a tax perspective, there was little apart from the increase in funding for Inland Revenue staff, and there was not even a hint around tinkering with the income tax thresholds, which have not been shifted for 13 years. While expanding the tax base did not rate a mention in the budget, recent discussion documents released by Inland Revenue, and discussion of taxing economic income, provide cause for concern.
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