The Australian Budget is released – what clues for the coming New Zealand Budget.

The Australian Budget is released – what clues for the coming New Zealand Budget.

  • Facebook New Zealand’s 2023 results show the scale of the advertising revenue going offshore.
  • Treasury’s blunt warning ahead of the Coalition Government’s December Mini-Budget.

The Australian budget was announced last Tuesday evening and although comparisons with Australia are not always constructive, there are several points of interest, not just in terms of how the tax systems operate, but also about initiatives which could replicated here.

The Treasurer is predicting a surplus for the period to June 2025, but after that, apparently things get a bit tougher. A little bit like Aotearoa-New Zealand in that regard. The key point with an election coming up, is the “Stage Three” tax cuts take effect from 1 July. As is well known and has been the subject of some commentary over time, Australia has a tax-free threshold of A$18,200. That threshold isn’t changing, but what is happening is that the tax rate for the next bracket between $18,200 and $45,000 is dropping from 19% to 16%. The big change is in the next tax bracket where the rate drops from 32.5% to 30% for income from A$45,000 all the way up to A$135,000 Australian. Quite apart from the rate change the bracket has been extended from A$120,000 to A$135,000. The 37% bracket remains in place and applies for income between A$135,000 and A$190,000. Over $190,000 the top rate of 45% kicks in.

We had record migration last year and a lot of those people are heading to Australia and no doubt these tax measures will make it more attractive. I’m in the camp that you can’t ever compete on tax cuts because there’s always someone better able to reduce tax rates further. Right now that’s Australia.

One of the interesting comments I’ve heard about the Australian budget, is that the Australian Treasury forecasts, are frequently incorrect sometimes resulting in unexpected surpluses. Apparently, the Australian Treasury consistently under-estimates forecast inflation and the iron ore price, which since Australia is such a huge minerals exporter, is quite critical. Generally, the Australian economy tends to perform better than Australian Treasury predictions.

Another strong Australian corporate tax result

Furthermore, as the Australian economy is performing so well, the Australian company tax take is now a significant proportion of the total tax revenue.  For the coming year to June 2025 it’s predicted to be A$141.2. billion or just over 21%.

(Deloitte Australia)

That’s a substantial sum by world standards. For comparison, in the UK (a near comparatively sized economy) the proportion of the tax take that comes from companies is usually between 7% and 10%. We are also a country with a fairly high corporate tax take. In the year to June 2023, it was 16.1% of total tax revenue. However, one of the reasons the Government’s books are deteriorating is the decline in the company tax take which is expected to fall to 15.6% of the total tax revenue this year.

Australian cost of living initiatives

There were also a number of other direct cost of living initiatives, including a $300 energy bill rebate to all Australian households. Eligible small businesses will get a $325 rebate during the coming year to June 2025. The Australian Government will also provide A$1.9 billion Australian over five years to increase the Commonwealth Rent Assistance maximum rates by 10%. (This would appear to be the Australian equivalent of the Accommodation Supplement).

Over here we don’t know whether the Budget in two weeks’ time will contain specific cost of living responses similar to these Australian initiatives but that appears highly unlikely. Based on what we’ve heard so far, the Government is relying on the individual tax threshold adjustments to sort of deliver cost of living relief.

Beefing up the ATO

Australia has a capital gains tax and some changes are proposed around the application of capital gains tax to non-residents. These are intended to ensure from 1 July 2025 that foreign residents are caught within the rules in relation to disposals of land. That’s something people tend to forget, that non-residents are taxable on disposals of Australian property and these proposed rules are intended to strengthen that compliance.

Another thing of note, which I think we will see something similar in our budget, is increased funding for various Australian Tax Office (the ATO) compliance programmes. The ATO has currently got three such programmes on the go, covering personal income tax, the shadow economy and tax avoidance (Tax Avoidance Taskforce). The Budget announced a new initiative countering fraud. In terms of dollar returns on these programmes, they range between four to one for the funding of the personal income tax down to a little two to one for the Tax Avoidance Taskforce.

Small businesses and ABUMS

The other thing that I think people would love to see here is the Instant Asset Write Off. This is where small businesses can purchase an asset up to $20,000 in value and claim an instant write off. This programme has been extended for another year. Apparently one of the reasons it has been extended is that the legislation which would have terminated that programme hasn’t yet been passed. Australian governments have a habit of announcing measures and then not getting around to passing the relevant legislation resulting in something with the delightful acronym ABUMS – Announced But Unacted Measures.

Overall, there was some interesting stuff in the Australian Budget including another measure I’m going to talk about next, which I also wonder whether we might see applied here.

Facebook’s results

Moving on, Facebook has now released its New Zealand financial statements for the year to 31 December 2023, and these are bound to generate some controversy. The official income reported for the year was $9.1 million and the profit before tax was $4.4 million, resulting in income tax of $1.3 million.

Like Google New Zealand details of the payments to related parties is the very interesting section to look at, together with the statement of cash flows because these give you a better clue of what the scale of Facebook’s activities within New Zealand are. Note 4 to the financial statements, which explains the revenue, sets out what is happening. “The company reports advertising reseller revenue and associated direct cost of sales for reseller activity on a net basis” This note explains that the gross amounts it received in the year to December 2023 from advertising and services was $163,567,786 and then a reseller expense was $157,428,667.

So, although Facebook is reporting income for income tax purposes of $9.1 million, the real scenario is that the revenue that’s passing through it, is substantially higher.

Another Australian example to follow?

Now it so happens there’s a case going through Australia at the moment involving what they call an embedded royalty. Basically the Australian Tax Office took a case against drinks company Coca-Cola in relation to what it perceived as an embedded royalty (and therefore subject to withholding tax) in payments for the right to brew Coca-Cola in Australia.

The Australian budget has a number of what’s termed Intangibles Integrity Measures. One of those it appears is a new provision, effective from 1 July 2026, where it applies a penalty to taxpayers who are part of a group with more than $1 billion in global turnover annually, that are found to have mischaracterised or undervalued royalty payments to which royalty withholding tax would otherwise fly.

Now that’s two years away from implementation, but it’s clearly a shot across the bow of companies such as Facebook or Meta, and Alphabet, the owner of Google, about these reseller services expense. So that’s something to watch how this develops.

And I just wonder whether we might see something similar here, because significant sums of money coming from advertising, are going overseas, and, as I’ve mentioned before, that has had a detrimental impact on our media landscape that it’s basically been starved of cash as a consequence. So, watch this space.

Treasury’s warning on structural reform

Finally, this week there was a budget information release from Treasury of papers relating to the Government’s mini budget in December. And one of the papers titled Implementing the fiscal strategy has attracted quite a great bit of interest.

In the paper Treasury sets out in fairly blunt terms that there is a requirement or need for structural reform of the tax system. The key paragraphs are 24,25 and 26. Paragraph 24 notes

“Structural reform of the tax system is the most effective way to ensure it is flexible and capable of raising additional revenue sustainably… Such reform would need to recognise that while revenue raising is the primary purpose of the tax system, its distributional and economic objectives are also important.”

Plenty of wry smiles here for those who listened to the Titans of Tax expand on this very point.

The problem with fiscal drag

Paragraph 25 then discusses the importance of fiscal drag

“Since 2010, fiscal drag…has played an important role in enabling successive governments to use the tax system to meet their revenue objectives. This has placed increased pressure on the tax system’s other objectives. If you wish to offset or end fiscal drag, through adjustment of personal income tax rates and thresholds the fiscal headroom which needs to be created will further increase”.

In other words, if you want to end fiscal drag, you really do need to rebalance and reshape the tax system,

I’ve seen some commentary that this was blunter advice than was provided to the  previous government. I don’t actually subscribe to that view because in my view Treasury’s 2021 long-term fiscal insights briefing He Tirohanga Mokopuna was pretty clear that a fiscal crunch was coming. I just think that because there’s been a change in government, what Treasury has done here is taken the rather softly, softly approach in He Tirohanga Mokopuna and just made it very blunt so the new Government knows from the offset that there are challenges ahead. And to be fair to Finance Minister Nicola Willis and the Prime Minister, they have not denied that. But what they propose to do about it, of course, we’ll have to wait and see.

And on that note, that’s all for this week, I’m Terry Baucher and you can find this podcast on my website or wherever you get your podcasts.  Thank you for listening and please send me your feedback and tell your friends and clients. Until next time, kia pai to rā. Have a great day.

An overview of the new Covid Resurgence Support Payment

  • An overview of the new Covid Resurgence Support Payment
  • What could be the implications of Facebook’s actions in Australia
  • Pre-31st March year end tax planning


On Wednesday, the Government passed under urgency, the Resurgence Support Payments bill.

This was introduced in the wake of the move to level three and then level two lockdowns in the Auckland region. This had been in the works for some time, but then just got pushed through under urgency following what we might call the Valentine’s Day mini outbreak.

Resurgence supports payments may be applied for if there is an increase in the alert levels from Level 1 to Level 2 or higher and the alert level remains higher than Level 1 for seven days or more.

It’s going to be available to all businesses in New Zealand each time it activates. So even though Auckland went into a Level 3 Lockdown and then back down to Level 2, because a lot of tourism is currently dependent on tourists from Auckland, the resurgent supports payments will apply nationally.  This is a wise move, which cuts down a lot of administration, but also reflects the fact that Auckland is a prime source of tourism for the very weakened tourist industry.

Businesses are able to apply if they’ve experienced a revenue decrease or a decrease in capital raising ability of at least 30% due to the increase in the alert level. And they need to measure their revenue for that 30% fall over a continuous seven-day period where the first day is on or after the first day of the increased alert level. All seven days must be within the period of the increased alert level. The affected revenue period then needs to be compared against a regular seven-day revenue period that starts and ends in the six weeks prior to the increased alert level.

This scheme is going to be administered by Inland Revenue rather than the Ministry of Social Development as happened with the wage subsidies. Applications should be made through myIR and Inland Revenue is expecting that people receive the resurgence support payment within five working days of their application.

The payment must be used to cover business expenses such as wages and fixed costs. Note that this isn’t a wage subsidy per se, it’s a support payment. And that possibly explains the slightly unusual change from the previous wage subsidy in that this payment is subject to GST now.

Although no income tax deduction will be available for expenditure relating to use of the resurgence support payment, GST registered businesses will be able to claim input tax deductions for any expenditure funded by the resurgence support payment. In other words, if you pay the rent using the resurgence support payment, you won’t get an income tax deduction for it, but you will still be able to claim a GST input tax credit.

The payment consists of a base amount of $1,500 dollars per applicant, plus $400 per full time equivalent employee, up to a cap of 50 full time employees. Although payments are capped at 50 full time employees, businesses with more than 50 full time employees may still apply.

There is a further cap in that the amount an applicant may receive will be the lower of the base amount and four times the amount their revenue has declined, as declared by the applicant as part of the application. And I can see Inland Revenue having a bit of work going on in years for larger scale applications here.

Anyway, the measure is now in place and fortunately everyone within the Auckland region, because they are still in level two, will be able to apply for this because they have been at an Alert Level higher than Level 1 for the required seven-day period. I imagine there will be further tweaks to the scheme as we go forward in the event of further outbreaks.

Facebook gives Australia the fingers

Moving on, yesterday across the Ditch, Facebook announced that …

“due to new laws in Australia from today, we will reluctantly restrict publishers and people in Australia from sharing or viewing Australian and international news content on Facebook.”

And with that, it stopped any sharing of Australian news media sites and indirectly, some New Zealand sites could be affected as well.

Now, this stoush has been brewing for some time. The Australian Government is trying to force Google, Facebook and other tech giants to pay more for the media content. Google has played along with this proposal. Microsoft, which runs the Bing search software, is also playing along. But Facebook has pushed back very hard and decided to go very hardball with this move.

Now, barely two years ago, Facebook literally made blood money about live streaming the Christchurch massacre and then wrung its hand about the difficulties of taking down such abominations. But yesterday it basically was able to switch off all of Australia’s major media sites on Facebook just like that. And I’m sure there will be a few pointed comments made about that.

I can’t see how such outrageous behaviour will not draw a strong response. And this is where I think from a tax perspective, things may go. The Australian government has previously been lukewarm about a Digital Services Tax, but Facebook’s actions might prompt a rethink. The Australian Tax Office has done some work on this, and there might be a bill lying around which could be introduced at the drop of a hat in effect saying, “Here, stick this up you”.

Incidentally, during this whole run up to this stoush erupting, at least one tech commentator suggested that a DST would be a better approach instead of what the Australian government was trying to do. We’ll see how this all plays out and it’s going to be very interesting to watch. Facebook just lifted the stakes considerably.

There are, according to the OECD, about 40 countries either with an active DST or considering introducing one. Maybe Australia is about to become number 41.

KiwiSaver makeup

Now, briefly following up from last week’s podcast, Inland Revenue is to pay approximately $6.6 million to compensate over 640,000 KiwiSaver members whose employer contributions were delayed in getting to the providers. Now, this happened last April, when Inland Revenue moved KiwiSaver to its new Business Transformation START platform. And for some reason there was a delay in passing on employer contributions to people’s KiwiSaver accounts.

This story reports delays of as much as six months or more. So people lost out on investment performance over that time. And during that time, the use of money interest rate paid by Inland Revenue dropped to zero which would have been the usual way of compensating for the delay.

Instead, what’s going to happen is Inland Revenue has been given approval to make ex gratia payments of about $6.6 million in total. This is a slight bit of a disappointment for Inland Revenue because as I said, by and large, the Business Transformation programme, controversial as it is, has worked relatively smoothly and improved processes. It’s certainly not a Novopay scale disaster, but it’s just another sign that sometimes with IT projects things go wrong.

End of year planning

And finally, the 31st March tax year end is fast approaching. So it’s time to start thinking about what steps could be done in advance of that. Now, there’s a couple of things in particular people might pay attention to.

Firstly, you have until 16th March to make use of the $5,000 threshold for “low value assets”. Under this you get a full write off for assets up to the value of $5,000 acquired on or before 16th March.

This is an emergency measure introduced a year ago as part of the Government’s initial response to Covid-19. So now’s a good time to see if there’s equipment you want to replace or upgrade and take a full write off.

For assets purchased on or after 17th March, that threshold of $5,000 will be reduced to $1,000 going forward.

Now, the other thing to think about is tied in with the forthcoming increase in the personal tax rate to 39%. And the suggestion would be that companies might want to think about paying dividends out to use imputation credits prior to that date so that the shareholders are taxed at 33% rather than 39%.

Sometimes you might pay a year-end dividend anyway because that’s just part of the regular distribution pattern. But you might also do so because the shareholders might have an overdrawn current account which you want to get into credit.

The thing that complicates matters this year is whether such a move might represent tax avoidance. I don’t believe so. But one thing people must keep in mind is that as part of the increase in the tax rate to 39%, trusts have to provide more information about distributions they’ve made in prior years. So as the commentary on the tax bill said, “this is expected to assist in understanding and monitoring the changes in the use of structures and entities by trustees in response to new 39% rate.”

And that’s what gives me pause for concern about paying large dividends before 31st of March. If there isn’t a regular pattern of large dividends before the increase and then a large dividend isn’t repeated after the rate increase, Inland Revenue may look to argue tax avoidance and effectively tax retained earnings. So approach that one with caution.

I think this is a point where Inland Revenue really needs to come out and be very clear about what is going to happen with dividends paid by companies to trust shareholders, which aren’t then distributed.  I think you’ll have a problem if the pattern was previously such dividends were distributed by the trust, maybe less so if that wasn’t the case. Again it’s a question of watching this space. And we’ll bring you developments as and when they happen.

Well that’s it for today, I’m Terry Baucher and you can find this podcast on my website or wherever you get your podcasts. Thank you for listening and please send me your feedback and tell your friends and clients. Until next week Ka kite ano!