Budget 2017

New Zealand vs Australia

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Budget 2.0 for an election year?

With Australia’s Federal Budget handed down on 9 May, the time is right for a cross-country snapshot.

Both countries’ economies are growing. While New Zealand records a surplus, Australia is set to record 12 consecutive deficits – the longest continuous period of deficits in its modern history.

Prime Minister Bill English and Finance Minister Steven Joyce pride themselves on our sound public finances, targeting net debt to fall below 20% of GDP. Meanwhile Australia’s net debt is expected to rise to the highest point in that country’s history. Even so, Australia’s peak debt is projected to peak at 19.8%. Australia’s problem meets our definition of success.

Is this a Budget 2.0 for an election year? Joyce has wiped the slate clean. The Government has moved on from trying to return to surplus through spending control to maintaining a surplus while simultaneously increasing public spending. Spending on the Family Incomes Package, infrastructure, tax, the care workers settlement, social investment…this is a Budget featuring big changes.

Infrastructure is a big winner on both sides of the Tasman. Each Government has made strong commitments to enable major infrastructure projects. In New Zealand, we see an $11 billion spend on schools, housing, state highways, rail, health facilities, defence and prisons. Australia has heralded a $70 billion infrastructure spend-up.

  • New Zealand economy by numbers >
      New Zealand Australia
    Deficit/Surplus

    Surplus is here to stay
    2016 Surplus $1.8 billion (0.7% of GDP)
    2017 Surplus $1.6 billion (0.6% of GDP)
    2017 Deficit A$37.6 billion (2.1% of GDP)
    2018 Deficit A$29.4 billion (1.1% of GDP)
    Net Debt

    20% by 2020?
    2017 – 23.2% of GDP
    2018 – 22.8% of GDP
    2017 – 18.9% of GDP
    2018 – 19.5% of GDP
    Real GDP Growth

    As good as it gets?
    2016/17 - 3.1%
    2017/18 - 3.5%
    2018/19 - 3.8%
    2016/17 - 1.75%
    2017/18 - 2.75%
    2018/19 - 3%
    Inflation

    Hitting that elusive 2% mid-point target
    2.2% 2.1%
    Interest rates

    Good time to invest
    2017 – 1.75% 2017 – 1.5%
    Average full time wage

    An entrenched 30% pay gap
    NZ$1,132.01 A$1,533.10
    Unemployment March 2017

    Skills at a premium in tightening New Zealand labour market
    4.9% 5.9%
    Immigration

    Small net inflow from Australia
    Net inbound migration (year ended March 2017) – 71,932 Net inbound migration (year ended 30 June 2016) – 182,165

A Tale of Two Tax Systems

Amid talk of tax cuts, do the two countries share a structural problem? Revenue will grow in line with GDP, yet expenditure will rise with demographic trends.

New Zealand’s stable and efficient business tax system is a national asset. We are pleased to see that Joyce hasn’t bowed to pressure to accelerate measures targeted at much needed inbound investment. Changes to the personal tax system – around thresholds and working for families tax credits – were well signalled and targeted at that vital demographic segment, the “Kiwi battler”. With the average full time wage closing in on $60,000, these cuts will make a real difference to a lot of people.

Unlike New Zealand, Australian changes focus on increasing tax revenues. Even so, our total tax take as a share of the economy remains well ahead of that in Australia. With a top personal rate including Medicare and levies touching 47% and a company rate still above New Zealand’s, Australia struggles for revenue.

  • New Zealand tax system by numbers >
      New Zealand Australia
    Tax/GDP ratio 27.7% for 2016/17
    Remains between 27- 28% until 2021
    23.2% for 2016/17, rising steadily to 25.4% by 2021
    Budget 2017 tax measures

    Business tax

    • Predicting $250 million over four years in additional revenue from work to halt multinational tax avoidance
    • Some black hole expenditure and feasibility costs to become tax deductible

    Personal tax from 1 April 2018

    • 10.5% rate increases in $14,000 threshold to $22,000
    • 17.5% rate increase in $48,000 threshold to $52,000
    • Abolition of independent earner tax credit
    • Working for families family tax credit abatement changes brought forward

    Business tax

    • New major bank levy for authorised deposit taking institutions with liabilities of at least A$100 billion, to raise A$1.5 billion each year
    • International tax anti-avoidance measures extended
    • Small business instant write off for assets costing less than A$20,000 extended to 30 June 2018

    Personal tax

    • Medicare levy to increase to 2.5% from 1 July 2019. Relief for low income earners will remain.
    • Temporary budget levy (on incomes over A$180,000) to end on 30 June 2017

    Administration

    • ATO funding to target serious crime
    • Taxable payments reporting system for contractors in the courier and cleaning industries
    • Sales suppressed technology and software banned

    Housing and superannuation

    • First home super saver scheme
    • Downsizing home to upsize superannuation

    Personal tax rates 2017-18

    $14,000 – 10.5% ($22,000 from 1 April 2018)
    $48,000 – 17.5% ($52,000 from 1 April 2018)
    $70,000 – 30%
    Above $70,000 – 33%

    A$18,200 – nil
    A$37,000 – 19%
    A$87,000 – 32.5%
    A$180,000 – 37%
    Above A$180,000 – 45%
    Excludes 2% Medicare levy