2024 Budget: Tax Cuts and Tight Spending

The 2024 Budget has shaped up to be a no-frills, responsible fiscal plan with targeted tax cuts and key investments. Dubbed the “No Surprises Budget,” it introduces significant tax cuts and rebates, with income-earning Kiwis benefitting from a $14.7 billion tax package over 5 years. Delivering her first Budget, Finance Minister Nicola Willis has essentially stayed the course, fulfilling promises made during the election campaign.

The Budget ensures tax cuts for a wide range of earners:

• Median income earners will see an extra $50 per fortnight starting from August.
• The tax cut package includes reductions in income taxes, rebates for early childhood education fees, and tax cuts for landlords.

These changes will be funded through over 200 saving initiatives, trimming the fat in various government departments and funding cuts.

The tax cuts vary based on income and family circumstances:

• General Tax Relief: Workers earning over $14,000 will see tax cuts ranging from $4 to $40 per fortnight, part of the $14.7 billion tax package.
• Working for Families: An increase in the in-work tax credit will provide up to $50 more per fortnight for 160,000 low and middle-income families.
• Income Boosts: Adjustments to tax thresholds and expanded eligibility for tax credits aim to mitigate the impact of inflation.
  • Minimum wage earners will gain about $12.50 per week.
  • A working couple with a combined income of $150,000 will be $40 better off per week.
  • A single adult earning $55,000 annually will see a $25.50 weekly increase.
  • Retired couples on superannuation will get between $4.50 and $13 more per week, depending on future superannuation increases.

The tax cuts are fully funded from savings and revenue, avoiding the need for borrowing. This plan is bolstered by contributions from NZ First’s coalition agreement, such as cancelling fees-free for first-year tertiary education and investing in Inland Revenue tax audits.

The government is set to implement tax bracket adjustments for the first time since 2010, aiming to provide “meaningful but modest” tax cuts primarily targeting middle and lower-income workers. These changes, to take effect from 31 July, come as a response to high inflation.  The introduction has been delayed by 4 weeks to give payroll software providers time to undertake the updates.  These tax cuts will be fiscally neutral, meaning they will not necessitate additional debt.

Current brackets $	New brackets $	Rate
0 – 14,000	0 – 15,600	10.5%
14,001 – 48,000	15,601 – 53,500	17.5%
48,001 – 70,000	53,501 – 78,100	30%
70,001 – 180,000	78,101 – 180,000	33%
180,001+	No change	39%

As this is a third of the way through the tax year, in the 2024/25 tax year there will need to be “composite” tax thresholds for the current tax year to average the changes across the year.  When any personal tax rates or thresholds change, this has ripple effects across all taxes applying to individuals, so expect a change to the FBT, ESCT, RWT, and PIR thresholds.

For 2024, the operating allowance for new spending is set at $3.2 billion, the smallest amount of new spending since Steven Joyce was Finance Minister. This careful approach reflects a commitment to fiscal responsibility amidst economic challenges. Future budgets will also require tight spending, with reduced operating allowances planned over the next few years to ensure financial sustainability.

In addition to the tax cuts, there are significant spending increases in critical areas:
• Health: A substantial boost, continuing to support hospital funding and new initiatives.
• Police: More funding for 500 extra police officers.

However, the Budget also entails cuts and savings in other areas:
• Free prescriptions have been removed.
• Public service funding has been reduced.
• $2.8 billion of savings from tax and benefit adjustments, including the removal of commercial buildings depreciation and indexing benefits to inflation rather than wage growth.

The Treasury’s economic forecast paints a challenging picture:

• Inflation is expected to fall below 3% by the end of 2024, returning to below 2% around mid-2026.
• GDP growth remains limited, with unemployment projected to reach 5.3% by the end of 2024.
• Government debt is forecast to increase year-on-year, reaching $178 billion in 2024.

The Finance Minister highlighted the need for future Budgets to continue pulling back on spending, describing the Government’s approach as “weaning off” a bloated state.

Despite these tax cuts and increased spending on public services like health and police, the Treasury expects the Government to return to a modest operating surplus by 2027. This is earlier than previously forecasted, thanks to the reduced operating allowances compared to Labour’s projections.