Codie Hageman
We appreciate there will be a diverse range of views among our client community about the election outcome, however I’m sure we can all be united in being pleased to see an end to a particularly negative, exhausting campaign. Now is the time to look ahead to the path forward, so that we can alleviate some of the serious issues New Zealand faces.
With the 2023 General Election voting having been concluded, and the outcome a clear National victory, we want to outline some likely tax and business changes that may impact our clients (not to mention the economy generally).
With the Special Votes yet to be counted, it is not yet clear whether the government will comprise of only the right leaning National / Act pairing, or if New Zealand First will be required, doubtlessly adding some complexity to the arrangement. While the wheeling and dealing is still to come, National did campaign vigorously on a tax package including changing the income tax brackets, and introducing some changes around the rental interest expense deductibility and the Bright-Line Test (the common term for the capital gains tax affecting many property sales).
We note it is a policy of all potential governing parties to reduce tax rates to adjust for inflation, so are confident changes will be made in some form. National’s proposed tax bands are as follows:
| Current Brackets | Tax Rate | New Tax Brackets (FROM 1 JULY 2024) | Tax Rate |
|---|---|---|---|
| $0-$14000 | 10.5% | $0-15,600 | 10.5% |
| $14,000 – $48,000 | 17.5% | $15,600 – $53,500 | 17.5% |
| $48,000 – $70,000 | 30% | $53,500 – $78,100 | 30% |
| $70,000 – $180,000 | 33% | $78,100 – $180,000 | 33% |
| $180,000 + | 39% | $180,000 + | 39% |
Act are slightly more aggressive in their plan and proposed to cut the income tax bands from the current five to three, with a top tax rate of 33%.
New Zealand First were not specific on their tax policies, but committed to “NZ First will adjust tax brackets for inflation starting 1 April 2024, with the first adjustment taking place in 2027 and every three years thereafter”. We note New Zealand First also wants a Tax-Free band for the first $14,000 of income for all earners, to take effect from the 2027 fiscal year. There could be some negotiations around the final shape of the tax changes, to earn agreement from all three parties, but we do note that the incoming Prime Minister promised to resign many times if he could not deliver promised tax relief, so we can be confident to suggest changes will be going ahead.
In addition:
The Independent Earner Tax Credit is a $10 per week before-tax credit for earners not on Working for Families or a benefit (among some other criteria), currently earning between $24,000 to $44,000 a year, with the amount reducing by 13 percent for those earning between $44,000 and $48,000. National proposes to push this threshold from the current $48,000 income to $70,000, with amounts reducing from $66,000+ instead of $44,000+.
Working for Families thresholds, Childcare Rebates, the Auckland Regional Fuel Tax and Fuel Excise taxes in general are also likely to see changes, the shape and scale of these could be subject to change with coalition discussions, so we will revisit these in a later update.
National are proposing to reinstate interest expense deductibility for rental properties. We know this will be welcome news for our many of our clients, and in our view this correction reinstates fairness and integrity in this area of the tax system. Despite frankly, ugly, hyperbole during the campaign speculating about 300 or so investors getting millions of dollars back in tax rebates, we know the reality is very different for the vast majority of property investors.
Based on what we could find in terms of commentary from likely coalition partners Act and New Zealand First, we are inclined to think National’s proposed changes will go ahead.
The reinstatement of full interest deductibility will not occur instantaneously, but rather is proposed to be phased back upwards over a few years, as per the table below:
| Date Interest Incurred | Percentage Of Interest That Can be Claimed (Current – Labour) | Percentage Of Interest That Can Be Claimed (Proposed – National) |
|---|---|---|
| 1/4/22 – 31/3/23 | 75% | 75% |
| 1/4/23 – 31/3/24 | 50% | 50% |
| 1/4/24 – 31/3/25 | 25% | 50% |
| 1/4/25 – 31/3/26 | 0% | 75% |
| 1/4/26 Onwards | 0% | 100% |
It should be noted that it is Act’s policy to remove the restrictions on interest deductibility with immediate effect, not phased back in over many years. The challenge in doing so would involve reworking National’s Fiscal Plan and needing to look for further cutbacks, which could be politically unpalatable. We are unsure of New Zealand First’s position on this, so the final timing of the above could still be negotiated on. Again, we believe this was an area of emphasis from National during the campaign, and they are likely to want to deliver on it.
National also proposes to reduce the current Bright-Line test from 10 years, back to 2 years. The Act party wants it scrapped altogether, while New Zealand First was part of the 2017–2020 Labour-led government that expanded the test from 2 to 5 years (Labour used their majority government to expand this to 10 years in 2021). We see movement from 10 years here is likely, but will likely be a matter of negotiation during coalition discussions.
We will leave the mechanics of how new residential loans are treated and the final shape of the Bright-Line Test for a future update, once some of the current unknowns are worked through.
The above changes could make all the difference between a viable property investment and something you may have been holding off on until now. If you would like to discuss your options for property investments and how this can work for you from both a tax and budgeting perspective, please feel free to contact your Giles & Liew Client Manager or Director to discuss.
National, Act and New Zealand First are all against the current Clean Car Discount Scheme to some degree, so we can be confident this will be ending in due course. By design, this scheme subsidises “clean” vehicles such as hybrids and electric vehicles, paid for by a tax on most standard petrol vehicles, and largely all commercial vehicles. The subsidies can be worth up to $7,015 for fully eligible vehicles, and cost the highest-emitting vehicles up to $6,900 in additional fees.
The timing involved to dismantle this scheme is to be determined, however, for any clients considering buying an electric vehicle, we recommend doing this sooner rather than later to take advantage of the discount. For any business considering a new ute, van or other commercial vehicle, if you can afford to do so, it might be worthwhile to await further announcements on this, which could be worth a considerable tax saving, depending on the timing of your vehicle purchase.
Labour outlined two recent changes to the tax system that National has factored into its recent Fiscal Plan. Therefore, the following changes are confirmed, locked in, and not affected by the election result:
In addition:
As part of National’s “Back Pocket Boost” tax package, they also produced a number of new revenue-earning policies, such as a Gambling Tax and a Foreign Buyer Tax for offshore property investors. National also promised to reverse relatively recent changes to the long-standing GST exemption for enterprises earning less than $60,000, regardless of whether a service is provided via a digital or traditional selling platform.
All of these policies will be subject to coalition discussions and a lot of policy work. We will provide relevant updates or developments as we become aware.
There remains a lot of discussion and policy work to come in the next few weeks and months. For now, we just wanted to provide some insight as to the changes we can be confident of at this stage with an incoming new government.
We will, of course, keep our ears to the ground for any changes we learn that will affect our clients and wider business community, and we will be sharing these with you in a timely manner.
Should you have any questions at all, please don’t hesitate to contact your Client Manager or any of the Directors of Giles & Liew Chartered Accountants.
Disclaimer: This publication has been carefully prepared, but it has been written in general terms only. As a firm, we do not endorse any political party or candidate noted above. We have made our best efforts to thoroughly research the points made in our commentary above, but these policies should be considered speculative at this point pending the final outcome of the 2023 General Election and all associated coalition negotiations. The publication should not be relied upon to provide specific information without also obtaining appropriate professional advice after a detailed examination of your particular situation.
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