The National Government unveiled its second Budget on Thursday 20th May, with the biggest tax reform in 25 years and a focus on growing the economy in a sustainable fashion. Six key areas were identified as opportunities to lift growth. These are investment in productive infrastructure; removing red tape and improving regulation; supporting business innovation and trade; lifting skills; lifting productivity and improving services in the public sector; and strengthening the tax system.

Some of the key areas of interest to business owners are:

• From 1 October, all personal tax rates are cut – for those earning $14,00-$48,000 their tax rate will change from 21% down to 17.5%, those on $48,001-$70,000 will see their rate come down from 33% to 30% and those earning above $70,000 will have a new tax rate of 33% (down from 38%). It is felt that the reduction in the top personal tax rate may help deter high skilled workers from looking at offshore options. This will also ease the tax burden for many small businesses that are on the top personal tax rate.

• From the start of the 2011/12 income year, the company tax rate will fall from 30% to 28 per cent and tighter rules around the taxation of investment property take effect.

• From 1 October, the top tax rate for most portfolio investment entities (PIEs), including KiwiSaver accounts, will be reduced from 30% to 28%, while other PIE rates drop to align with the new personal tax rates.

• NZ Superannuation, Working for Families and benefit payments will all rise.

• As expected GST rises from 12.5% to 15 per cent on 1st October (however it is the Government’s view that at all taxable income levels, the across-the-board personal tax cuts will more than offset the rise in GST).

• $267 million has been allocated in 2010/11 to expand the Job Ops programme – doubling the places for 16-24 year olds with low or no qualifications to 12,000.

• Depreciation deductions will no longer be allowed for buildings with an estimated useful life of 50 years or more, such as rental houses and offices. These rules will change for all such buildings from the 2011/12 income year. For most businesses they will be effective from 1 April 2011. Building owners will be able to apply to IRD for a provisional depreciation rate if they consider a class of buildings has an estimated useful life of less than 50 years.

• Building owners will still be able to claim deductions for repairs and maintenance, to maintain the condition and value of their properties.

• Business will no longer be able to claim 20% accelerated depreciation on new plant and equipment. This change will apply to assets purchased after Budget day.

In addition, capital spending outlined over the next four years includes four main areas:

• Broadband - $200 million for the roll out of ultra-fast broadband, as well as $48 million more for broadband in schools.
• Rail - $500 million for electrification of Auckland rail lines, as well as $250 million for the wider rail network and rolling stock.
• Prisons - $337.4 million to lift prison capacity and manage justice sector pressures.
• Schools - $177.4 million for new schools and school property.