Budget 2023
The New Zealand Government released its 2023 Budget, on Thursday 18th May 2023. If you blinked you might have missed it. It has been billed as a “No Frills Budget”, a “Bread and Butter Budget” (have you seen the price of bread and butter these days?), and officially a “Wellbeing Budget” Mark II.

You can read a summary of the budget announcements here at the official Beehive website, the Budget at a glance here, or at the Inland Revenue website (for the tax related points).
As is our habit, we want to steer off course and look at some other issues, possible implications and generally try to be a bit “disruptive” (that being a trending term apparently).

20-hours free early childhood education for 2 year olds
Post budget, we heard a young mum being interviewed about this new initiative. She was absolutely thrilled to hear of the proposed 20 free hours a week for 2 year olds at Early Childhood Education Centres (ECE). Her family with three young children (including twins turning 2 around the time the policy comes into effect, March 2024), meant they now had financial choices of whether she would return to work. Without the new subsidy package the family had decided it was not financially viable for her to do so. But is there a job for her to return to? The Reserve Bank has publicly said it wants higher unemployment to suppress inflation. Look around, they’re winning.

And will there be teachers and places available? ECE’s are already pushed to take on more children, there are teacher shortages; and some only take on a limited number of “free hours” places, because the Government funding does always cover the “free hours” costs; and to secure a place a family may need to commit to full time placement (and cost). There have also been many reports of substandard ECE’s. It gives one pause to think, if you wanted to send your toddlers to an ECE, especially if you had no choice but to do so (because you must work).
We know another young family, with 3 children under 5. There is absolutely no opportunity for that young mum (a qualified professional in a sector desperate for staff) to go back to work, because 2 of their 3 children have high health needs that prohibit the luxury of choice. Finding an ECE has been difficult, and difficult for the amazing and highly skilled staff at the ECE to provide one on one care. If it ‘takes a village to raise a child’ this family needs three villages. And they are not the only ones with challenging lives.

Is that $1.2 billion dollar cost (over two years) the best the Government could do for families with very young children?

Free prescriptions
At a cost of $618.6 million over four years, the proposed cancellation of the $5 per prescription item will be welcome to many with or without dependent children. Especially, since the shortages of some medications means that instead of a 3 monthly supply, pharmacists are forced to issue only monthly ones (and charge a fee each time). But did you know that once you reach a maximum of 20 scripts per annum for subsidised medicine the $5 fee is no longer charged (combining family together)? And did you know that most prescriptions for children under 14 years of age are free? And did you know that many vulnerable people in New Zealand with life-threatening conditions do not qualify for many prescription or medical subsidies anyway? Not just the ones not funded by Pharmac, but other things like treatment in-hospital to infuse fully funded medicines, or having to buy your own replacement consumables to use after a funded medical procedure?

More funding for Community nursing and Early childhood
The Government have announced more funding for teachers in early childhood centres, which is just to pay for the pay rises that have already been agreed i.e. the money flow is catching up to the reality. And also, more financial support for nurses working in the community such as General Practitioners, to stop them leaving for public sector roles (this is like paying Paul, to stop him robbing Peter). And working on reducing waiting lists. What you would expect any Government to do. And this does not come cheap, perhaps the $1 billion quoted, but …

What we would like to see
We personally would have liked to have seen some significant targeting of those in the disability and high medical needs sector being better supported, not just in child placements so parents can go back to work earlier or have a break from caring for a child, but in helping the family physically care for dependents (whatever their age) in the family home, with quality respite care. Resources that support families staying together. Because right now, placing a child with a stranger gets the child more financial and physical support than if they stay with their own parents, and a couple separating makes more financial sense than staying together, and giving up work to care for your bed ridden parent is better than leaving them in understaffed hospitals and care facilities.

We would like more support for local General Practitioner services, local medical hubs, local pharmacists, and midwives, local dentists, ambulances (at the top of the cliff), mental health services. Local – because when a crisis comes (and we have seen some in the last few years), it is the local medical support teams that keep our country and our tamariki alive and safe.

We acknowledge the Government has announced $863.6 million to help ease cost pressures on Government disability support services. But this sum is so small and funding is not always spent; the numbers are spread over many years; and not always spent wisely.
We would like to see small businesses (which are not always small) be supported when they look for banking finance to expand their business, to take on staff, or keep going when the economy is contracting.

Who’s the big bad wolf here?
No doubt you have heard about the top wealthiest families in New Zealand paying way too little tax. It’s shocking. And just like the use of statistics can create a different position, others say it is not the whole truth, or even anywhere near the truth. You can take what every view you wish, we have an opinion which says they are both right and both wrong.

Read my Lips …
Those words may have appeared before in a Shellock Blog. Still. The Government have announced a tax increase for Trusts from 33% to 39%. Humm, think we might have known that was going to in our 2022 Budget blog. The Government anticipates this will raise $350 million pa. Small change, but every bit counts of course. You can click here to read all about it.

The reality is that most Trusts in New Zealand are not awash with money, and are not squirreling millions of dollars away from the Inland Revenue. And this Government has acknowledged that in its budget and announcements. Of 177,000 Trusts, 5% earned the most income $13.3 billion out of $17.1 billion. And these are the Trusts that will bear the brunt of the tax increase.

It’s all about publicly attacking an easy target – tax the wealthy, tax the Trusts. Already commentators are saying it will mean very little to the wealthiest families, because they will merely keep the profit in an investment company (28% tax) rather than distribute it to their Trust (39% tax). But, the Government have already thought of that. Again, we refer you to our Budget 2022 blog – “excess retention tax” will be on its way.

The Trust 39% tax rate will affect Trustees who retain the income in the Trust, rather than distribute it. Fine. But the point of a Trust (excuse us for stating the obvious) is not always, or even usually is a Trust used to avoid paying the top personal tax rate of 39% (which was kindly introduced by this Government). It is to preserve assets and provide for the beneficiaries into the future (including old age, illness, disability), and provide a legacy that is secured for future generations. It is also, and very commonly used to protect people in business from future creditors, and the next generation from opportunistic future partners, wayward spendthrifts and vulnerable children and grandchildren.

We know when retirement comes for a business owner, they will usually sell their operations and be left with a non-trading company, which needs to be wound up. The company is liquidated. The profits and capital gains are distributed to the owners, which may include Trusts. The companies may have not paid a dividend (or not much of one) for years and years, because the cash was needed to ensure the business survived and thrived. On liquidation, the tax paid profits are distributed at a further tax cost. And, “oh no”, from 1 April 2024, to be taxed a 39% (less the tax already paid) – in one lump sum in one year. It would be nice if the Parliamentary select committee were able to find it in their hearts and minds to understand that those who practice delayed gratification (i.e. who don’t strip the company annually for boats, and planes and automobiles) could be allowed at least something for retirement.

Can we suggest a tiered Trust tax regime as a middle ground? Perhaps an ability to reduce the 39% rate if there was a winding down of a business, and/or the age of the principals is factored in as relating to the retirement (e.g. 55 years plus). Even our Australian cousins have rollover relief and discounts on capital gains, and small enterprise discounts and age-related tax adjustments (all very complicated admittedly). But, you cry, their Trust tax rate is equal to their top personal tax rate. Yes, we reply, but there are ways and means which means they don’t (usually) pay it.

Inflation adjusted tax rates?
Sorry, not going to happen. All you full time workers on the minimum wage can just be grateful you have a job (see above), and can stop whinging about paying 30% tax (the so called middle income bracket).

If you would like to talk to us about how the proposed Trust rate could affect you, you can contact us via our website, www.shellockconsulting.co.nz.

The photo that appears on our blog was taken at the beautiful township of Kaikoura at dawn in May 2023. We continue to be optimistic for our country, just maybe a few mountains (or hills) to climb.

• https://www.beehive.govt.nz/feature/budget-2023-support-today-building-tomorrow
• https://budget.govt.nz/budget/pdfs/at-a-glance/b23-at-a-glance.pdf
• https://www.taxpolicy.ird.govt.nz/news/2023/2023-05-18-budget-2023
• https://www.beehive.govt.nz/release/cheaper-childcare-20-hours-free-ece-extended-two-year-olds
• https://www.beehive.govt.nz/release/helping-health-costs-prescription-charge-scrapped-providing-cheaper-medicine
• https://www.healthnavigator.org.nz/medicines/p/prescription-charges/#:~:text=For%20GP%20or%20hospital%20prescriptions%2C%20adult%20New%20Zealanders,are%20free%20if%20the%20medicine%20is%20fully%20subsidised
• https://www.newshub.co.nz/home/politics/2023/04/tax-wealthiest-kiwis-effective-tax-rate-less-than-half-of-middle-nz-driven-by-capital-gains-new-reports-reveal.html
• https://www.scoop.co.nz/stories/BU2304/S00230/new-research-shows-new-zealands-wealthiest-pay-their-fair-share-of-tax.htm
• https://www.taxpolicy.ird.govt.nz/publications/2023/2023-other-fact-sheet-increasing-trustee-tax-rate
• https://www.taxpolicy.ird.govt.nz/-/media/project/ir/tp/publications/2023/2023-other-fact-sheet-trustee-tax-rate/2023-other-fact-sheet-trustee-tax-rate-pdf.pdf?modified=20230517214532&modified=20230517214532