Key Takeaways from New Zealand's 2024 Budget: Tax Changes and Implications

The Government has focused on the following:

• meaningful tax reductions that aim to provide for middle income earners.
• enduring savings across government departments and agencies.
• improved public services with new spending focused on priority areas in health, education and law and order.
• tight control over spending, with limited new policy commitments and cost pressures unable to be funded through reprioritisations.
• a long-term sustainable pipeline of infrastructure investments.

Whilst the budget was crisp and heading in the right direction around managing wasteful spending, there were some missed opportunities. We felt there could have been measures introduced to spur investment in businesses and innovation through making access to the Research and Development Tax Incentive more efficient and reviewing measures that would attract more long term and sustained investment into New Zealand. Further, changes to the tax brackets could have included some measures to simplify the administration of tax collection for example a 0% tax bracket for certain beneficiary payments.

Overall, we rate the budget a B+ with a strong path to an A next year once inflationary pressures are under control and recovery of the economy, allowing for a deeper focus on businesses and attracting investment into New Zealand.

We set out below the key tax changes coming out of the budget.

Adjustment to the marginal income tax brackets

From 31 July 2024, the personal tax rates will change.

The purpose of this is to introduce meaningful tax cuts to alleviate the cost of living for ‘middle’ New Zealanders. It’s been 14 years since there were any changes to the tax brackets and these adjustments will start to address the fiscal drag created when taxpayer’s income moves up a tax bracket as their salary/wage increase with inflation.

The tax bracket adjustments will be funded through reprioritization of existing spending, savings, and new revenue measures which the Government states demonstrate they are not borrowing fund tax relief.

The shift in tax brackets will mainly favour low-income earners putting more money back into their pocket to help with the cost of living and boosting disposable income – described by some commentators as a ‘back pocket boost’.

It is likely that the delay from 1 July to 31 July 2024 is to permit payroll providers to make requisite changes to payroll systems as mid income year bracket and/or tax rate changes add a layer of complexity to the tax system.