Pre-election promises: What do the major parties’ tax policies mean for New Zealand SMEs?
20 September 2023
As our country grapples with a challenging economic environment both domestically and internationally, all eyes are on the upcoming election.
What are the political parties planning to do, and can they guide the country out of the recession as well as improve the economic wellbeing of individuals and businesses in New Zealand?
Regardless of whether you agree with it, tax can be used to curb unwanted behaviour and/or encourage investments (the ‘new build’ exemption to the bright-line test is a good example). The tax policies of political parties are therefore an indicator of the direction of travel for the New Zealand economy. With this in mind, we summarise below the key tax policies proposed by various political parties:
ACT
- Move to a two-rate tax system. Individuals will be subject to 17.5% for income under $70,000, and 28% for income in excess of $70,000. Companies and trusts will be subject to a tax rate of 28%.
- Provide a low- and middle-income tax credit for low- and middle-income earners.
Green
- Introduce a 2.5% wealth tax on assets with a value exceeding $4m (minus mortgages and other debt) for couples, and $2m (minus mortgages and other debt) for individuals.
- Introduce a trust tax of 1.5%
- Introduce a top income tax rate of 45% for income over $180,000.
- Increase the corporate tax rate to 33%.
- Bring in an income guarantee scheme to provide an income of at least $770 a week for couples and $385 a week for individuals.
Labour
- Lift the Working for Families abatement threshold to $50,000.
- Increase Working for Families in-work tax credit by $25 a week.
National
- Make tax bracket adjustments for individuals to compensate for inflation.
- Extend the upper income limit for Independent Earner Tax Credit from $48,000 to $70,000.
- Introduce FamilyBoost childcare tax credit to support families with young children.
- Increase Working for Families in-work tax credit by $25 a week.
- Lift the Working for Families abatement threshold to $50,000.
NZ First
- Make tax bracket adjustments for individuals to compensate for inflation.
Te Pāti Māori
- New personal tax rates for individuals from 31 July:
0% - Income of $30,000 or less
15% - Income of $30,001 and up to $60,000
33% - Income of $60,001 and up to $90,000
39% - Income of $90,001 and up to $180,000
42% - Income of $180,001 and $300,000
48% - Income of $300,001 and above
- Introduce a wealth tax:
0% - Net wealth under $2 million will not be taxed.
2% - Tax rate for net wealth over $2 million.
4% - Tax rate for net wealth over $5 million.
8% - Tax rate for net wealth over $10 million.
- Increase company tax rate to 33%.
- Introduce an overseas financial transfer tax of 2% - which will apply to all overseas-owned companies operating in New Zealand.
ACT
- Repeal interest deductibility rules.
- Abolish bright-line test.
- Share half of GST revenue from the construction of new residential dwellings with the local government that consented them.
Labour
Commercial property
- Remove tax depreciation for commercial buildings.
National
Residential property
- Phased restoration of interest deductibility for rental properties, with interest being 100% deductible from April 2026 onward.
- Reduce the bright-line test period for rental properties, from the current 10 years down to 2 years, effective from July 2024.
- Introduce a 15% foreign buyer tax on the purchase of houses worth over $2m. A foreign buyer is a person who does not hold a resident class visa in New Zealand.
Commercial property
- Remove tax depreciation for commercial buildings.
Te Pāti Māori
- Introduce an undeveloped land tax to stop developers from land-banking (which will apply to undeveloped land within 4 years of purchase). The value to be taxed will be based on current market value less original purchase price, with the tax rate of 33% applying. Exemption for Māori freehold and customary land.
- Introduce a vacant house tax, payable on all properties that do not have tenant after a six-month period. Calculated based on current market value less purchase price, with tax rate of 33% applying.
ACT
Labour
- Remove GST on fruit and vegetables.
National
- Cancel Labour’s planned fuel tax hikes.
- Remove Auckland Regional Fuel Tax.
- Remove “Ute Tax” (as well as clean car discounts).
- Cancel “App Tax.”
NZ First
- Remove GST on basic foods including fresh food, vegetables, meat, dairy, and fish.
Te Pāti Māori
Labour
- Introduce Digital Services Tax, which will apply with effect from 1 January 2025 (unless OECD can reach an agreement on a multilateral solution before then). This tax will apply to multinational businesses that derive income from New Zealand users of social media platforms, internet search engines and online marketplaces. Businesses who derive global digital services income in excess of €750m, and NZ digital services income in excess of NZD 3.5m will need to register. The tax will be 3% of gross taxable NZ digital services revenue.
National
- Impose tax on offshore operators delivering online gambling to New Zealanders.
- Move to user-pay immigrations levies (excluding tourist levies).
ACT
- Introduce a carbon tax refund. Revenue collected from ETS auctions will be re-distributed to individuals via reduction in income tax liability, with excess refundable to the individuals.
- Abolish R&D tax credits.
Within the tax policies proposed by the major political parties, it’s encouraging to see widespread recognition of the financial squeeze faced by individuals and families, and the support that parties are willing to provide to those suffering the most.
Small-to-medium businesses (SME), which includes the self-employed as well as businesses with 0–20 employees, represent 97% of all businesses in New Zealand. These businesses and their owners are also facing challenges – a tight labour market, rising costs, high interest rates, deflated consumer spending, and uncertainty in the global economy. They also need the support of the incoming Government. Therefore, it’s disappointing that we see very few tax policies directed at this sizeable portion of New Zealand’s population.
If called upon to compile a wish list of tax policies for SME businesses and their owners, we would point to:
- Lower tax rates for small businesses below a certain level of turnover. For example, in Australia, all companies are subject to the federal corporate tax rate of 30%, however small or medium businesses are subject to a reduced tax rate of 25%. For small businesses that reinvest their retained profits (rather than distribute all profits to their owners), the tax saving can be used to fund growth opportunities.
- Reduce the administrative burden for SME businesses. According to an Inland Revenue study on the time and cost of doing taxes, in 2021, New Zealand small businesses spent on average 31 hours a year on various businesses taxes. Whilst this may seem negligible to medium to large size businesses with significant resources, for a small business owner, this represents one week of their time that could be spent taking a holiday and spending time with their family.
- Make research and development incentives easier to understand and more accessible. Currently, there are a number of R&D incentives or grants available to businesses – for example R&D Tax Incentive, R&D Loss Tax Credit, and Arohia Innovation Trailblazer Grant. However, the incentives come with complex rules, a lot of form filling, and lengthy discussions with various Government departments.
There’s less than one month to go until election day and we expect to see more campaigning and (non-tax) policy revelations from parties on both sides.
For more information on what’s happening with tax in New Zealand, view our collection of tax insights here