Budget 2022: will there be a tax surprise?
Tax experts expect a quiet day on Thursday, when this year’s budget will focus primarily on the government’s plans to spend billions more on health care, climate change policies and new initiatives to support businesses.
PWC tax partner Geof Nightingale said that for this reason a finance and economics team would lead its analysis of the budget.
It will be a “very interesting” budget, given that it will be the first that Finance Minister Grant Robertson has presented in an environment of high inflation, but probably not from a fiscal perspective, Nightingale said.
“We will have tax specialists ready to step in in case we need us, but I don’t think we will be.”
But there are usually a few unexpected announcements in the budget, and it’s possible that one or two of them this year have something to do with taxes.
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Deloitte tax partner Robyn Walker says she wouldn’t be surprised if the government changes the rules that apply to employee benefits tax to allow employers to subsidize public transport or electric vehicles for their staff without it being considered a benefit that should be subject to what is in fact income tax.
“It’s been a Green Party proposal for ages,” Walker said.
“I don’t think a lot of employers will do that sort of thing. But we’re at the point where employers probably want to think about how they can entice people back into the office, and if they think they can help with the costs, that can be a plus.
With even any Labor talk of a wealth or inheritance tax, bigger tax changes seem far less likely.
But one development that has saved the tax rumor mill from a standstill is Robertson’s announcement earlier this month that the Treasury does not now expect the government to return to surplus before the year starting in July 2025, a year later than planned.
Bank economists say the most likely explanation is that the Treasury will reveal in the budget that it has downgraded its economic forecast, possibly leaving a decent hole in corporate tax receipts.
Another explanation is that Robertson may be on the verge of announcing even more spending than expected in the budget.
But if the government were planning some sort of surprise tax cut, that would also fit with the delayed return to surplus.
No one gives credence to the idea that the government might cut income tax rates on Thursday.
The chances of the government raising tax thresholds at which higher tax rates seem almost equally exaggerated, Walker agrees.
Such a move could help draw National’s attention to the impact of the “tax brake” and inflation on people’s cost of living at a time when Labor might need a boost. thumb in the polls.
But any move to raise tax thresholds in line with inflation would be very costly, would benefit high earners as much or more than low earners, and there is simply no sign of it.
It’s certainly a long shot, but there’s speculation the government may decide now is the time to address the concerns of the ‘Fair Tax for Savers’ campaign and stop taxing the inflation component of payments. interest on bank accounts and term deposits.
Organizations such as Age Concern, Consumer NZ and the Financial Services Council have long argued that it is unfair that income tax is levied on all of these interest payments, rather than the ‘actual return’ after subtracting inflation.
According to the Reserve Bank, households had $219 billion saved in bank accounts and term deposits at the end of March, most of which will earn only a measly 1% or 2% in pre-tax interest. , and some less.
With many people on fixed incomes struggling with the rising cost of living, this could be both a relatively cheap and politically opportune time for the government to kill this beast.
The gross price would likely be less than $1 billion a year, and some of that cost could potentially be offset by making similar adjustments on the other side of the ledger to the interest deductibility rules, where they allow taxpayers to claim interest expense on their taxable income. Income.
The issue resurfaced after Inland Revenue policy adviser Bill Fulton briefed Parliament’s Finance and Expenditure Select Committee in February of the ‘distortive’ effects that taxing nominal rather than tax-adjusted returns inflation could affect investors’ decisions about where to put their money.
Walker believes there is an outside chance of some changes to the tax treatment of interest payments, if the government wants to do something drastic.
“They could do that by just dealing with ‘overtaxation’ on the income side, but if they wanted to do the same thing on ‘deductions,’ that would get into pretty dangerous territory,” she says.
Nightingale is skeptical savers are about to get tax relief in the budget.
“It makes perfect sense – removing the inflation component – but that would be quite a big change,” he says.
Interest rates “appear throughout the tax system” and adjusting them all for inflation could have complex consequences, he agrees.
“I would be very disappointed if they proposed such a change in the budget. I would like that to go through a proper consultation process.
John Cuthbertson, New Zealand tax manager at Chartered Accountants Australia and New Zealand, said a move to stop taxing the inflation component of savings interest would come as a welcome surprise.
“Traditionally, this fixed income market has been largely made up of ‘retirees’ and, in some cases, vulnerable retirees; those who don’t have enough money to build a stock portfolio and are trying to make ends meet with a little savings.
But Cuthbertson says he would also be very surprised if the government made such a move.
“They haven’t shown any signs of that, historically.
“I’m traveling the country doing our annual tax roadshow right now and the offhand comment I would make is that the best news we could hope for is ‘no news on the tax front’ because that’s the only good news that we’re going to get,” he said.