• an increase in the trustee rate but no action, yet, on tax rates and thresholds

The big tax surprise in the Budget is that there is no tax surprise. Surprisingly, well to me at least, the Government included no changes to income tax and other thresholds and there is little indication of any such changes ahead in the Budget documents.

The destruction wrought by the January floods and Cyclone Gabrielle may have interrupted plans for such changes. Of course, the Government could be keeping its powder dry for the coming election campaign. No doubt we will find out when the campaigning begins in earnest.

On the other hand, the increase in the trustee tax rate to 39% with effect from 1 April 2024 should not have come as a surprise. Inland Revenue recommended the trustee rate should also be increased to 39% when the top personal income tax rate of 39% was introduced in 2021. It was only a matter of time before the trustee rate rose and the publication of Inland Revenue’s High Wealth Individual Research Project provided a clear opportunity for the Government to do so.

In the accompanying press release announcing the measure Minister of Revenue David Parker noted that new Inland Revenue information shows a near 50% increase in trust income taxable at the trustee rate from $11.4 billion in the 2020 tax year to $17.1 billion in the 2021 tax year. The top 5% of trusts with taxable income accounted for $13.3 billion or 78% of all trustee income in the 2021 tax year.

As a tax policy measure, it is logical and is expected to raise $350 million annually. (There will be some exemptions for disabled and deceased estates).

I expected an announcement about the OECD’s Base Erosion and Profit Shifting international tax rules similar to the initiatives included in last week’s Australian Budget. There was no such move although the forecasted tax revenue for the June 2027 includes an estimate of $25 million as the initiative takes effect. Asked about this in the Budget Lockup, Grant Robertson specifically ruled out a Digital Services Tax.

Nor did we see any moves for increased or targeted depreciation measures as was also in the Australian Budget, although the new 20% rebate for game development studios matches an Australian measure. The gaming industry is exactly the sort of low-emissions, high wage, high growth export industry we need, so the move is welcome.

Looking at the numbers, tax revenue is projected to rise from $114.6 billion for the June 2023 year to $122.6 billion for the June 2024 year. About a billion dollars of the increase is the effect of fiscal drag where wage rises crossing tax thresholds mean higher average taxes for earners. Resident Withholding Tax on interest has almost doubled to an expected $1,659 million for the current year to June 2023, a direct effect of the dramatic increase in interest rates over the past year. Proof, perhaps, that every interest rate rise cloud has a silver lining, for the Government at least.

There are a few interesting snippets from digging through the Vote Revenue Estimates of Appropriations. Last year’s Cost of Living payments were budgeted as costing $706 million, but according to the Appropriations the final cost was $50 million lower at $656 million.

Inland Revenue’s funding appropriation for June 2024 shows a $23.2 million or over 20% boost from $110.6 million to $133.8 million for its investigation, audit and litigation activities. Debt management gets a significant increase too, although the provisions for impairment and debt write off totalling $931 are actually down from the estimated $985 million for the current year.

Overall, from a tax perspective this was a surprisingly quiet Budget especially considering it’s an election year. Grant Robertson was quick to brush off questions about electioneering but on the tax front at least I think we can expect to see more in the coming months. The debate over tax rates, tax thresholds and capital gains taxes are all to come.