Venu Menon
Wellington, May 30,2024
With an eye on fulfilling its showpiece election pledge to “let hard working New Zealanders keep more of what they earn,” the National-led three-party coalition government today unveiled Budget 2024, amid a buildup of widespread concern over how the tax relief will be funded.
An anticipated opening move has been to increase income tax thresholds, set to go into force from 31 July 2024.
Those earning over $14,000 per annum will pay less income tax, which the government touts as a historic move as current tax thresholds have held steady since 2010, save for a threshold hike for high income earners in 2021.
The current rise in threshold is aimed at offsetting the impact of wage growth on income over time.
Independent Earlier Tax Credit (IETC)
In a nod to wage growth and its impact on income, the government has raised the eligibility for Independent Earlier Tax Credit (IETC). From 31 July 2024, individuals earning between $24,000 and $70,000 per annum will be eligible for IETC, a tax credit hitherto available to those earning between $24,000 and $48,000 per annum.
Those earning $24,000 to $66,000 per annum are eligible to get the full credit on a calibrated basis that reduces as incomes go up.
An estimated 725,000 people will benefit from this change.
In-Work Tax Credit (IWTC)
Low to middle income families with dependent children will receive an extra $50 per fortnight if they are employed.
FamilyBoost
Low-to-middle-income families with children aged 5 and under can access FamilyBoost, a new measure that helps meet early childhood education (ECE) costs.
FamilyBoost is a refund scheme that allows parents and caregivers to get back up to 25% of ECE fees, over and above the 20 hours childcare subsidy. The reimbursement will come in the form of a lump sum paid each fortnight up to a maximum of $150. The measure kicks in from 1 July 2024 but first payments will occur from October 2024.
Families earning over $180,000 per annum are not eligible for FamilyBoost.
The tax relief package fleshes out Prime Minister Christopher Luxon’s promised respite for New Zealand’s “squeezed middle.”
Budget 2024 aims to “deliver long overdue tax relief for 83% of New Zealanders, and invests in frontline public services to get better results.”
With an operating allowance of $3.2 billion per annum, the lowest since 2018, the government has claimed the tax relief is fully funded from “savings and revenue initiatives.”
The government makes the assertion that it is “not borrowing to fund this tax relief and it won’t add to inflation.”
Health
Frontline health services will receive $8.15 billion extra operating and capital funding, including $665.1 million siphoned from other sources such as reprioritisation.
Education
The Government is investing $2.93 billion extra operating and capital funding in schools and early childhood education, including $440.8 million out of reprioritisation .
Law and order
The Government has set apart $2.9 billion towards restoring law and order, which incorporates savings to the tune of $497 million from reprioritisation and other sources.
Infrastructure investments
The Budget has allocated $4.1 billion funding for the National Land Transport Fund to upgrade “roads of national significance” and other priority projects.
A new Regional Infrastructure Fund has been allocated $1.2 billion to invest in “resilience infrastructure and regional projects” that support economic growth.
Over $1 billion has been set apart for the rehabilitation of communities hit by Cyclone Gabrielle as well as the 2023 Auckland floods.
Another $200 million has been earmarked to support KiwiRail.
The government forecasts an expenditure of $68 billion towards future infrastructure projects.
Economic Outlook
The government foresees a period of belt-tightening ahead, despite Treasury forecasts of an upturn in 2024 with inflation flattening out later this year.
Fiscal Outlook
Runaway government spending and a concomitant rise in debt notwithstanding, the coalition government is targeting a surplus in 2027/28, and hopes to bring down Crown expenditure to 30% of GDP, as well as lower debt.
Venu Menon is an Indian Newslink reporter based in Wellington
