Budget 2007

I’m in the Budget lockup today, from 11 am to 2 pm. So I plan to start blogging details of the budget once we are released. However as people will have noticed, the front page can take hours or longer to rebuild, even though there are new posts, or changes to existing posts.

So what I am going to do is add on to this entry, any details of the budget. So after 2 pm clicking on the permalink for this entry and hitting refresh/reload should bring up the latest for you to comment on.

As predicted (thanks to Winston) Kiwisaver has significant changes to it. They are:

• Employer contributions become compulsory
• Both employer and employee contributions eligible for tax credit of up to $1,040 a year.
• This will make the scheme almost de facto compulsory as a employee on the average wage of $40,000 will for their $1,600 contribution effectively get $2,248 from the Government and $392 from their employer meaning total contributions of $4,240 for their $1,600.
• The more expensive an employee is, the more the employer has to pay, as the employer tax credit is capped.
• Overall it is a significant contribution by Government with $1.2 billion a year in 2010/11 going towards it
• The tax credits are not inflation indexed so over time as people earn more, the employers will end up with more and more of the bill.
• The table below shows how the scheme will work for three wage levels, once it is fully implemented in 2011:

kiwisaver.JPG

The Orwell Award goes to the press release which says– “The employer tax credit makes it much easier for employers to provide matching contributions” – the employer has no choice anymore as to whether it will provide them – they will now be compulsory!!!

As expected the company tax rate drops to 30%, which will costs around $500 million a year. Also a 15% tax credit for research and development which means those activities (which are narrowly defined) will be taxed at only 15%.

Talking of tax, 14% of taxpayers will now be paying the 39% tax rate, up from 5% in 2000. And those 14% will pay 53% of all income tax.

TAX CUTS CANCELLED

The previous announcement to move the tax thresholds next year has been cancelled on the grounds they would be inflationary (yet somehow all the extra spending will not be). So people will continue to pay more and more tax as these thresholds are not indexed, with us not even getting the chewing gum tax cuts. Definitely a case of eating cake.

Dr Cullen has adopted wholesale National’s policy for all charitable donations to be tax deductible.

Provision is made for regional petrol taxes in every region up to 10 cents per litre. No more than 5c can go on roading so the rest must go on public transport.

The surplus for this year is projected to be $6.3 billion and over the next four years after that a total of $22.7 billion. And not one cent of it coming back to those who pay it. Tax revenue is projected to increase from $52.2 billion this year to $62.0 billion in 2010/11.

Also of key note is Dr Cullen has done his usual job of increasing the contingencies – they were $1.9 billion a year cumulative, but now are much higher. $1 billion of them is tagged for the business tax reform but what it means is when Dr Cullen say the 2010/11 forecast surplus is for $5.4 billion, that is including a contingency of $10.3 billion for new expenditure.

Overall the good are the business tax cuts and the tax credits for Kiwisaver.

The bad are the compulsion on employers to subsidise Kiwisaver, and most of all not only refusing to give personal tax cuts but cancelling the tax cuts already announced.

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