(5,050)
(5,240)
(17,860)
GST rate increase
2,040
2,840
2,985
3,160
11,025
Non-compensatory Working for Families changes
5
40
75
65
185
Depreciation measures
140
935
1,000
1,045
3,120
LAQC changes
-
70
65
55
190
Thin capitalisation 60% threshold
-
200
200
200
600
GST base changes
15
60
60
60
195
Tobacco excise rate increases
135
180
210
190
715
Increased audit and compliance activity (net revenue)
120
210
210
205
745
Sub-total of positive impacts on the operating balance
2,455
4,535
4,805
4,980
16,775
Sub-total of estimated static impact
(465)
(115)
(245)
(260)
(1,085)
Adjustment for macroeconomic effects
5
25
205
435
670
Total impact on operating balance
(460)
(90)
(40)
175
(415)
$ million (rounded to nearest $5m)
Increase (decrease) in operating balance
8 | MINISTER’S EXECUTIVE SUMMARY
The tax rate for a number of other savings vehicles, including the top tax rate for portfolio
investment entities (PIEs), superannuation funds, unit trusts, group investment funds and
life insurance policyholder income, is currently aligned with the company tax rate. That
approach will continue with the tax rate for affected savings vehicles also reducing to
28%. This will further increase incentives to save.
The tax rate for trustee income is unchanged, so as to align with the new top tax rate of
33%. This improves coherence and integrity. In particular, non-aligned rates provide
opportunities for high income earners to shelter their income in trusts.
There are also widespread concerns about some households structuring their affairs to
increase their eligibility for social assistance programmes (such as WFF). This is unfair.
As an initial step, from 1 April 2011 investment losses will be added back to taxable
income for the purpose of determining eligibility for Working for Families assistance.
Further changes, covering areas such as distributions from trusts and income from cash
PIEs, will follow after the Budget. Officials will release a paper setting out the issues and
proposed solutions later this year for implementation from 1 April 2011.
The current tax system is not neutral with respect to investment decisions. The Budget
introduces a range of measures that broaden existing tax bases and make effective tax
rates more uniform across sectors. The existing 20% depreciation loading is explicitly
designed to skew depreciation tax rates away from economic rates. This will be revoked
for new assets. It is also clear that not all buildings actually depreciate. Depreciation
rates for buildings with expected lives of 50 years or more will be set to zero to reflect this.
The thin capitalisation “safe harbour” threshold for inward investment will reduce to 60%.
This is to buttress the internationally recognised principle that income should be taxed in
the jurisdiction where it is generated (in this case New Zealand).
Table 1 – Fiscal impact of the tax changes
2010/11
2011/12
2012/13
2013/14
4-yr total
Personal tax rate cuts
(2,455)
(3,685)
(3,935)
(4,255)
(14,330)
Compensation for GST rate increase
(420)
(585)
(610)
(620)
(2,235)
Company tax cut to 28%
(20)
(340)
(450)
(305)
(1,115)
PIEs & savings vehicles capped at 28%
(15)
(40)
(55)
(60)
(170)
Administration associated with tax package
(10)
-
-
-
(10)
Sub-total of negative impacts on the operating balance
(2,920)
(4,650)
