Budget 2023: Insights for Businesses and Individuals

Budget 2023

The 2023 budget was announced yesterday, it was pitched as a “no-frills” budget, and that is what was delivered. Budget 2023 does not include much funding specifically targeted at supporting small businesses, the backbone of New Zealand’s economy. On a bright note, it is anticipated that the economy will not enter into a recession during 2023.

The fiscal outlook projects total Crown revenue for the year to 30 June 2023 to total $155.6 billion. Of which tax revenue contributes $114.6 billion to that total. The tax rate can be broken down to comprising 70% from individuals and corporates with the remaining 30% from GST and other indirect taxes.

Revenue Measures

Tax cuts, and any moves to change the tax thresholds, have been firmly ruled out on the grounds that any relaxation of tax rates would fuel inflation. Three revenue measures will be included in an upcoming taxation Bill:

• The trustee tax rate will be raised from 33% to 39% to align it with the top personal income tax rate for the 2024–25 and later income years from 1 April 2024 for most trusts.

• From 1 July 2024, the Government will make a 3% KiwiSaver contribution to recipients of paid parental leave who make their own contribution of at least 3%.

• The Budget also reflects an increase in revenue from imposing a tax on some large multinational enterprises operating in New Zealand.

We are not surprised that a change to the trustee rate has been included. This was a "loophole" left in when the government introduced the new top marginal income tax rate of 39% for individuals earning over $180,000. While no new taxes still holds and we don't have a Capital Gains or Wealth tax to discuss at the moment, this is building on the momentum of the recent high wealth individual report.

Cyclone recovery

This acknowledges the importance of climate-resilient infrastructure, but also New Zealand’s poor track record of investment in this infrastructure. Budget 2023 builds on the $889 million already provided in the immediate response to the Auckland Anniversary floods and Cyclone Gabrielle. The Cyclone and floods have brought the need for a strong disaster protection and recovery programme, a National Resilience Plan aims to ensure communities will not in future be isolated by loss of communications, electricity and roading access.

Climate emergency response fund

The following measures are included in Budget 2023:

• $120 million to expand the growing network of charging hubs to underserved areas

• $300 million in new money to help accelerate private investment in low-emissions activities through New Zealand Green Investment Finance Ltd

• $50 million to improve access, affordability, and security of energy in remote, low-income, and energy-insecure communities

• $45 million to improve data on the impacts of climate change, and

• $32 million to help decarbonise energy in hard-to-abate sectors by investing in green hydrogen.

This increased uptake should support the government’s target of reaching net zero carbon emissions by 2050, noting that emissions from New Zealand’s light vehicle fleet are the single largest source of transport emissions in New Zealand.

Some of the other notable measures of Budget 2023 are as follows:

Cost of living support

The Budget provides the following support:

• Extending 20 hours free early childhood education to 2-year-olds from 1 March 2024

• Continuing pay parity for early childhood education teachers, up to 18.6% pay increase

• An increase of 5.3% to subsidies for playcentre, kōhanga reo and home-based early childhood education services from 1 January 2024

• A one-off grant of $3 million to support the sustainability of Playcentre Aotearoa

• Continuing free school lunches

• Delivering 300 more classrooms and up to 4 schools

• Providing free public transport for children under 13 and permanent half-price fares for under 25s

• Removing the $5 prescription co-payment

• Lowering household energy bills through an expanded Warmer Kiwi Homes Programme

• Providing extra support for students in need.

Building for tomorrow

The Government has committed $71 billion across the next 5 year for new and existing infrastructure investments, in addition to funding set aside for projects that are still in the planning stage.

In addition to the existing pipeline, the Government is allocating $6 billion into a new National Resilience Plan to support medium and long-term infrastructure investment.

Science and technology

Budget 2023 positions the NewZealand economy for the future with a major investment into science, digitaland horticultural technology sections. This includes:

• Initiatives to help meet a government target of spending 2% of GDP on research and development.

• $451 million to set up 3 research and technology hubs in Wellington.

• $160 million to give video game developers a 20% rebate, aiming to help keep this growing industry in New Zealand with similar rates seen overseas.

• $75 million funding for Industry Transformation Plans, including for Horticulture, Digital and Tourism.

• Providing $38 million for New Zealand to join the European Union’s Horizon Europe initiative, allowing researchers based in New Zealand to work closely with European researchers to solve global challenges, including climate change, energy and global health issues.

Public services

Through Budget 2023, the Government is making significant investments to protect and improve the critical public services. These include:

• 3,000 additional public housing places

• Investing in a range of initiatives to boost skills, improve achievement, reduce class sizes, and lift teacher pay

• Permanently reinstating the training incentive allowance to assist sole parents, disabled people and their carers to study, and

• Continuing to focus on winter, workforce and waitlists, as well as health reforms and equity by including more than $1 billion to increase pay rates and boost staff numbers, and $20 million to lift COVID-19 immunisation and screening coverage for Māori and Pacific peoples.

Māori and Pacific

Budget 2023 includes a range of investments to support Māori and Pacific peoples. These include:

• Improving Māori housing and infrastructure

• Strengthening the Whānau Ora system

• Providing funding to repair 250 whānau Māori homes impacted by North Island weather events and building Māori communities’ resilience by improving their access to key climate data

• Improving access to Pacific language learning resources, supporting TeReo Māori revitalisation, boosting funding for Te Matatini and the New Zealand Māori Arts and Crafts Institute, and providing resources for vibrant Matariki celebrations, and

• Providing funding to implement the Pacific Employment Action Plan, and Pacific Wellbeing Strategy, to help Pacific workers into employment and training, and build the capability of this workforce.

As stated above, it was pitched as a “no-frills” budget, and that is what was delivered. There is an election in five months, therefore, any lolly scramble’s or significant game changers will most likely come out on the campaign trail.

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