With so much change and uncertainty in New Zealand and around the World, we wish the Government all the best as it attempts to present and honour a budget for the coming year. We are glad we are not in their position.
But there is no reason why we cannot put forward a number of alternative suggestions: just don’t expect us to balance the books with them.
Like a slice of cake, this alternative budget is best taken one layer at a time: energy, water, housing; families, education, immigration; tax and local government. Some layers are practical, some are ambitious, and some may need a sharper knife before being served.
Energy, Water and Community Resilience
Power – anyone?
To get the elephant in the room named and shamed we think we need to discuss New Zealand’s over reliance on foreign oil. First, we must have a solar-focussed view.
Vehicles
It makes economic sense when buying your next vehicle to go for electric, and it makes practical sense to consider a hybrid. By preference, these hybrids should be plug-ins.
It also makes sense for larger vehicles such as trucks, buses and farm vehicles to not only be hybrid, but potentially carry their own little charging capacity on-board – whether through panels on the roof or recharging while moving.
Residential Buildings
In our view, all new residential buildings (including apartments) and structures on residential sites such as carports and garages must be required to include solar charging, whether on the roof, on the walls or windows.
Solar generation should be compulsory in all new builds, with a capacity to generate an estimated 50% of the expected power use of the residents. To be exempt from this rule, the builder must apply for an exemption proving solar generation is not possible in the circumstances. A suitable scaled fee based on the size of the building will be payable for this exemption – to incentivise compliance.
Standalone carports and garages power generation can be counted toward the residential building’s minimum requirements.
Homeowners will be able to apply for a low interest Government loan, with a minimum repayment period of 10 years or repayment on sale if earlier.
Commercial buildings and businesses
In the same vein, all new commercial buildings (excluding agricultural structures) will have a compulsory obligation to include solar generation, to cover 75% of the estimated use from the building. Over a 10-year period this will move to 100%. There will be no exemption from this rule.
New agricultural structures (barns, sheds, milking sheds and similar) will be required to adopt self-power generation, but this can be met by a whole of farm test and could include wind turbines, roof and ground mounted panels.
Businesses will be entitled to a full capital tax deduction in the year of expenditure or backdated to the previous 3 years.
Additional power rules
Battery storage systems will be required with the size based on the floor area of the building, along with an automatic switch for allowing power to be drawn back to the grid during power emergencies.[1]
Power companies will be required to pay 50% of their standard retail power rate for all power purchased from the residential or commercial generator. This will first be credited to the generator’s existing power bill or refunded if the credit is not used within six months.[2]
The sale of excess power to a power company would not be subject to income tax (or GST) for the home or business owner unless they are in the business of power generation[3], or sell more than 20,000 kWh within a financial year.
Rainwater collection
Generally, rainwater is free, but the cost of collection and storage is not. We believe all new residential and commercial buildings should be required to collect and store rainwater. This water will be used for gardening and as grey water for toilets. The size of the collection system will depend on the footprint of the building.
New paving paths, patios and driveways in residential and commercial areas will be porous, to allow rainwater to seep back into the natural aquafers and less run off to sewers and drains.
All residential and commercial buildings will be subject to a separate water tax, after a minimum monthly allowance. Invoices will be issued monthly to ensure that property owners are not surprised by a large bill months down the track.
Councils will be required to prioritise water leak, damaged pipes and develop a pipe renewal policy to ensure that within 10 years there is minimal waste.
Community resilience
Central and Local Government will have joint responsibility to consider, consult and implement community resilience to future weather events, including if necessary, lifting or moving houses, or prohibiting new builds on existing risk sites.
Housing, Communities and Wellbeing
Rental accommodation – increasing residential wellbeing
To increase residential wellbeing, no exemptions will be granted from current Healthy Home standards, which will be increased over time based on best practice. All landlords will be subject to statutory liabilities for breaches. Government and local government landlords will not be exempt from these rules or granted extensions for compliance.
Landlords will be eligible for low interest Government loans to upgrade insulation and to retrofit solar panels, where the loan is secured against the property. Loans must be repaid at the earlier of equally over 10 years or on sale of the property, whichever is earlier.
Landlords will be entitled to a full tax deduction for upgrades to insulation or retrofit of solar generation in the year of the expense (or back dated to the previous 3 years).
Commercial landlords will be entitled to a full tax deduction for capital expenditure for earthquake strengthening or retrofit of solar generation. If the property is sold within 5 years of the deduction it could be clawed back as taxable income in the year of sale (unless the profit on the sale is already subject to income tax).
“Bed tax”
All commercial holiday accommodation will be required to pay a “bed tax”. The rate of the tax will be set by local government at a minimum of 1.5% and a maximum of 4% per annum, reviewable every three years.
Commercial holiday accommodation includes short-term accommodation targeted to the tourism market, where the property (or part of the property) is leased out at least 45 days in a calendar year. Excluded will be owner occupiers, short-term accommodation for registered boarding houses, hospitals, rest homes and retirement villages and similar short-term accommodation intended for local residents.
The “bed tax” will be subject to GST, payable to the Inland Revenue with the net tax redirected to local government. It must be spent on public infrastructure, transport, and public amenities.[4]
Green space and green corridors
To increase physical and mental wellbeing of residents all new green fields property developments must apply a minimum of 5% of the land to green space available for public use. Developer’s council contributions must be made by a combination of a financial contribution and land contribution (for large developments) and financial contributions for single dwellings or small developments on one site.
All large developments must set aside a portion of their land for local government to acquire either by land contribution or purchase, for these green spaces and corridors.
New subdivisions must have building-free green corridors between subdivisions, or within subdivisions, providing a minimum additional 5% of the land area.
Large subdivisions must also provide for a commercial area within each subdivision to allow local businesses to build and operate locally.
Canopy cover
All new subdivisions and residential new builds in existing subdivisions must include minimum canopy cover on the land to increase natural cooling in our communities. This could be met by planting adjacent to roads within the subdivision.
All new commercial developments must have a minimum canopy cover on the land but could be met by balcony and/or rooftop permanent plantings.
Families, Children and Education
Family and Child welfare
Working for Families and Family Assistance will be payable in full to all families where family income is less than $180,000 and gradually reduced up to a family income of $230,000. “Family income” will include income derived by the children via family trusts or share ownership, and family support paid to the parent or child by an absent parent.
Family support payments between parents will be eligible for offset between the parents.
All children under 5 years old should be registered with a medical centre or provider and receive six-monthly check-ups. No primary health care fees will be charged to children under 10 years of age.
All primary schools will be required to ensure all children in their care have
a) a registered medical provider; and
b) annual medical and dental check-ups at no cost to the family.
All Schools will be required to have an employed trained counsellor, with minimum hours equal to one hour per week for every five children.
Teacher support workers in public schools will be paid no less than the minimum wage plus 15% and will be paid for public and school holidays.
The Government, in conjunction with secondary schools will introduce means tested bursaries for students in years 11 to 13 to financially support students to remain in school. These bursaries will be tax free.
Tertiary students
Any tertiary student who receives Government living allowances will be required to be bonded to work for a Government-approved employer in their field of study[5] for a minimum of three years. They will be required to repay a portion of their allowance if they fail to complete this period of employment. The employment must be taken up within three years of graduation but can be spread over 10 years post-graduation.
The Government (or its affiliates) will be required to encourage and support private employers or offer Government employment opportunities to new graduates to the extent possible.
Graduates will be required to consider all reasonable offers of employment and may be required to move locations for employment, with moving costs funded.
All trainees that are required to complete on-site placements during training will be paid a minimum of the living wage and reimbursed for travel costs if the student must travel more than 50 km from their normal residence.
We support the removal of the fees-free policy. However, we would like to see more tertiary scholarships available and greater encouragement for the private sector to establish these.
Tertiary organisations that hold significant art works (including those donated) will be entitled to apply to the Ministry of Education for permission to sell up to 10% of these works every 5 years to finance on-going costs.[6]
Immigration
Migrants who qualify for residency or work visas based on their skills and qualifications must be entitled to work in those fields or enrol in cross-over retraining in New Zealand.[7] They will qualify for student allowance while retraining.
A qualifying migrant’s dependent family will also be entitled to residency and work visas, including if a dependent partner or child has a pre-existing medical condition.[8]
While minimum English language skills should be required for the principal migrant, this should be commensurate to their qualification entitling them to a visa.[9] The skill level for dependent family members would be lower.
Qualifying migrants will be able to sponsor wider family members after three years, if necessary, by paying a bond and having medical insurance or overseas retirement income.[10]
Any qualifying migrant (or their family) will be liable for deportation if they are convicted of a criminal offence involving violence or sexual assault with a minimum period of imprisonment of 12 months or more. Those who have subsequently obtained New Zealand citizenship who are convicted of these offences, or other offences with a minimum period of imprisonment of five years or more, or to have made serious fraudulent disclosures in their immigration application, will also be liable for deportation, subject to appeal.
Dependent partners and children of the qualifying principal migrant will be entitled to independent residency and continued visas if their relationship with the principal migrant is broken due to abuse within the family.
All Things Tax – CGT, FIF, KiwiSaver and Business
Capital Gains Tax
CGT should be imposed on residential property excluding the family home. One family unit can only have one family home, which must be nominated at the start of the regime or on purchase once the scheme has commenced. CGT will also apply to public and private shares.[11] The capital gain will be taxed at flat rate of 20%.
The opening value for the asset will be taken at the start of the regime and must be established within three years by a registered valuer.[12] The cost of the valuation will be tax deductible in the year of sale. Any capital loss will be carried forward and offset against further gains.
The sale of a business will be excluded from CGT for individual owners (or family trusts where the principal beneficiaries) are aged 60 years or older or have died.
Commercial property owned for less than 10 years will be subject to CGT at 28% of any gain, with a CPI index for inflation[13]. The taxable capital gain will be halved if sold after 10 years. Anti-avoidance rules will apply if held through an intermediary entity[14] where the owners change by more than 50%[15].
Rollover relief will apply for business assets if the capital asset is replaced within 12 months of sale, or where the individual owners have died. The CGT effect will be triggered when the replacement asset or the beneficiary disposes of the asset.
Foreign Investment Funds – to encourage non-residents to take up NZ tax residency
The FIF exemption limit will increase from $50,000 to $150,000. Foreign tax paid by shareholders (either directly or indirectly) will be available for offset against the FIF income up to the maximum tax payable in New Zealand.
Those already in the regime but removed on this change will be able to elect to remain as an FIF holder for pre-existing units.[16]
Superannuation and KiwiSaver changes
Universal superannuation will be gradually lifted to aged 67 years over a 10-year period. Any person between 65 years and qualifying for the superannuation will be entitled to the Jobseeker Benefit (individually income-means tested) but will not be required to actively search for work. A partner’s income will not be taken into account when assessing entitlement to this benefit.
KiwiSaver will be accessible from aged 65 whether the person is retired or not and whether they qualify for universal superannuation and will not be applied to a means test for pre-retirement Jobseeker benefits.[17]
KiwiSaver will be compulsory on an employer, irrespective of whether the employee is contributing to their KiwiSaver or on a contribution holiday. KiwiSaver will progressively increase by 0.5% per year for both the employer and the employee until it reaches 10% each. It will become harder for employees to qualify for a full contribution holiday, although they may apply for a reduced contribution (down to 2%) for a maximum of one year.
A KiwiSaver member will be entitled to have up to two KiwiSaver accounts but must nominate one to receive any Government contribution. The Government contribution should be phased out for employees where their total taxable income exceeds $180,000 per annum.
A KiwiSaver member will be entitled to draw down a modest amount of their fund monthly if:
a) they are unable to work due to illness for more than six months[18] or
b) they are unable to work and do not qualify for a Jobseeker Benefit.
Any withdrawals of KiwiSaver for these reasons or for hardship will be excluded from calculating other Government benefits or other financial support.
Tax losses for business
Any person or entity in business will be entitled to carry forward their tax losses to a future year[19] or opt for those losses to be claimed against income from up to three years prior.[20] The taxpayer shall have up to three years to make such a claim. Refunds of prior-paid tax in these circumstances will not qualify for any interest payment or CPI adjustment.
Businesses will also be able take a tax deduction for qualifying donations, despite having a tax loss in any one year.
Close companies
“Close companies” as defined in the Income Tax Act 2007[21], where the assets of the company are intended for private use under the majority use test, can elect to opt out of the company tax regime and be taxed as a partnership.[22]
No Fringe Benefit Tax will apply to shareholder employees for benefits provided by a private company but will be subject to deemed dividends instead. Deemed dividends can apply without an obligation to attach imputation credits and will no longer affect the imputation ratio rule for normal dividends.
Charitable Giving and Charitable Accountability
Donation tax credits
Individuals will not be eligible to claim a donation tax credit if it exceeds more than 50% of their taxable income in any given year. However, any excess donations will be carried forward and claimed in a later year on a first-in, first-out basis.
Charities
Charities will be required to file annual income tax returns including filing copies of their financial statements. They will also be required to provide a list of donations received for which a donation tax credit certificate has been issued, including the donor’s name, amount and certificate number.
Charities that have an annual income of more than $5m gross income (excluding donations) will be required to have their financial statements independently audited.
The Inland Revenue will create a special Charities audit division to review financial statements and investigate charities for compliance with tax, employment and charities law, and may make recommendations to the Charities Services where a charity has been found to be in gross breach of its compliance obligations. The funding for this audit division will be paid for by a filing fee charged to charities by the Charities Services.
Charities Services will have the authority to appoint an independent trustee to any charity where the charity has been reported for breaches by the Inland Revenue, which will be funded by the charity itself. If the breaches have not been rectified or continue within a prescribed period, Charities Services will have authority to remove the charity from the register. Normal appeal rights will apply.
Local Government changes
Local Government will be entitled to rollover capital assets where it is in the best interests of the community, but only where the proceeds are used to create or purchase new public assets. Public money will be unable to be diverted to private businesses or private charitable trusts, unless the public benefit is substantial, sustainable and justified.
We support consolidation of council and regional bodies, subject to consultation with local communities.
Regardless of legal consolidation certain “back-room” services will be consolidated to reduce costs and duplication through a Joint Venture between councils.[23]
The Final Slice
This is not a perfectly balanced budget – rather it is a collection of alternative ideas for a more resilient and forward-looking New Zealand.
Some suggestions may be controversial. Some need refinement before becoming workable policy. But, like a good slice of cake, the point is not to eat the whole thing at once, rather to consider each layer and ask whether it adds something work keeping.
[1] Subject to regulation
[2] On a rolling basis
[3] Where at least 25% of the businesses gross income is from the sale of power averaged over 3 years.
[4] Excluded from “public infrastructure and amenities” will be stadiums, libraries, art galleries, sports arenas or spaces, or local government buildings but may include heritage buildings that are or are intended to be available to the general public.
[5] Or aligned employment
[6] This may need a law change to override any trust or donor conditions.
[7] It is immoral to enable migration but fail to recognise their skills and qualifications to enable them to work in their professional fields.
[8] If necessary private insurance may be required for the first 5 years of residency
[9] A qualified chef should not have the same English language skills requirements to that of a teacher, nor by them to that of a doctor.
[10] Including parents and siblings
[11] Unless already within the revamped FIF regime
[12] This is to ensure that the valuation is within a reasonable time.
[13] The Corporate tax rate
[14] A company, partnership or trust
[15] With some rollover relief for close associates and death
[16] This is to compensate for the fact the taxpayer may be disadvantaged by any change.
[17] Currently they are linked
[18] And have no other means of financial support
[19] As is the case now
[20] Provided in the case of companies that the shareholder continuity rules would apply
[21] Where associated parties are counted as one
[22] Similar to the Look Through Company regime
[23] This could include resource management, building consents, water and in-ground infrastructure, Human Resources, legal services and similar administration.
