On Thursday 25 May, New Zealand Minister of Finance, Hon Steven Joyce delivered the 2017 New Zealand Budget.
To assist Hanrick Curran clients who have interests in New Zealand below is an overview of the Budget announcements.
Measures within the Budget intended to reinforce the strong economic growth New Zealand has experienced in recent past, projected to continue to immediate future.
The Budget observes that over 200,000 more jobs have been created over the last three years to arrive at a real GDP growth rate of 2.7% in the 2016 fiscal year. The annual GDP growth rates for 2017–2020 are forecast to be 3.1%, 3.5%, 3.8% and 2.9%.
The growth has been supported by low-interest rates, rapid population growth, residential investment and earthquake rebuilds.
Inflationary pressures are expected to build to over 2% in 2019, leading to interest rate rises. Net migration is expected to fall as the attractiveness of New Zealand declines, although net migration of 212,000 people over the next four years is still expected. The annual long-run increase of 15,000 per annum may emerge in 2022.
Housing investment has been strong up until recently, but currently investment has flattened because of tighter loan-to-value ratios, uncertainty around the Auckland Unitary Plan, capacity constraints and tighter credit conditions. These temporary headwinds are expected to subside so that house price growth may pick up once more in 2018, but ease from 2019 onwards as supply increases to match demand.
Earthquake expenditure includes the $9.5bn paid out by the National Disaster Fund to assist with the Christchurch rebuild. It is expected that rebuilding State Highway 1 from Picton to Christchurch following the Kaikoura earthquake will cost $812M.
Budget papers note that strong economy and prudent fiscal management have resulted in the New Zealand Government receiving high credit ratings. Moody’s has assigned an AAA rating, with an AA rating from both Standard & Poor’s and Fitch.
A slight shadow over the prospects of continued good economic health is cast by a number of factors. These include uncertainty as to the sustainability of growth in China, the possibility of slower growth in Australia should a significant weakening in its housing market development, and abatement of the very stimulating monetary conditions currently in place in Japan and in the euro region.
Business growth agenda expenditure totalling $1bn over four years is allocated as $39M in 2017, $200M in 2018, $264M in 2019, $268M in 2020 and $268M in 2021.
Interestingly, NZ Budget papers forecast a total of $6M expenditure on the multinational corporation research and development attraction programme. The programme aims to attract the research and development facilities of 10 multinational companies to New Zealand by 2020.
NZ Budget papers also project revenue increases totalling $250M relating to the taxation of multinational companies operating in New Zealand. No further detail was provided beyond a revenue impact of $50M in 2019, $100M in 2020 and $100M in 2021.
A full Indepth Report of the 2017 New Zealand Budget can be accessed here.
For further information about the 2017 New Zealand Budget or to discuss other international tax concerns please contact Hanrick Curran Tax Partner, Jamie Towers on 07 3218 3900.
Thank you to Alliott NZ for your content contribution.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.