Budget Speech (Continued)
Mr Speaker,
The Budget will also introduce a range of measures to broaden tax bases. These measures are being introduced to improve the fairness and efficiency of the tax system, and to improve the economy.
The existing 20 per cent loading on depreciation for new investments will be removed for assets acquired after today. Assets already purchased will continue to receive the loading.
This allowance explicitly departed from the principle of allowing deductions for true economic depreciation. It results in other taxpayers effectively supporting investments that might not stand up on their own merits.
In addition, the Government is not convinced that all buildings actually depreciate.
It is clear that some do. But many New Zealanders live happily in houses constructed over 100 years ago.
Allowing tax deductions for depreciation provides an unfair tax advantage for these assets.
Accordingly, the depreciation rate for most buildings with an expected life of 50 years or more will be set to zero from the start of the 2011/12 income year.
Those buildings where the current depreciation schedule is consistent with a useful life of less than 50 years will be unaffected.
Building owners who believe that, under these rules, a class of buildings should qualify for depreciation, may seek a provisional rate from Inland Revenue as they do at present.
Following the Budget, the treatment of commercial building fitout will be reviewed and if necessary amended prior to 1 April 2011 to clarify the law on the split between buildings which will not be depreciable and separate assets which will continue to be depreciable.
Taxpayers will, of course, still be able to claim deductions for repairs and maintenance.
Many investors hold property through Loss Attributing Qualifying Companies, or LAQCs. After a short period of consultation, legislation will be proposed so that from 1 April 2011 all LAQCs will be taxed as limited partnerships.
The main impact of this change will be to ensure both profits and losses are assessed at the marginal tax rate of the investor.
The Government has also reviewed taxation of inward investment into New Zealand. International tax law generally provides that income should be taxed in the jurisdiction where it is earned.
However, it is relatively easy to transfer income between jurisdictions by use of debt, often between related parties.
New Zealand, like most countries, operates “thin capitalisation” rules to limit this practice. The current “safe harbour” limit for gearing on foreign owned investments, will be reduced from 75 per cent to 60 per cent from the 2011/12 income year.
Mr Speaker,
This package of tax changes represents a major step forward. By improving incentives to save, and evening up effective tax rates across sectors and across vehicles, it directly addresses some of the problems that have beset the economy in recent years.
The package improves fairness and the integrity of the tax system. It ensures that taxpayers with similar circumstances and true economic incomes will have similar tax positions.
The package is broadly neutral in terms of income distribution.
While higher income earners pay more tax and therefore receive larger personal income tax reductions, these groups also bear most of the impact of the tax base broadening measures.
In addition, the compensation package is targeted to those on lower incomes.
On average most New Zealanders receive roughly a half to one per cent average increase in real disposable income.
The impact of the tax changes on economic growth will be positive, though only a small allowance has been made for this in the fiscal projections.
Finally, I thank my colleague, the Hon Peter Dunne, who as Minister of Revenue has worked tirelessly to help deliver the tax package before the House today.
Mr Speaker,
Budget 2010 also contains a range of other initiatives that will promote growth.
We have focused funding on investing in innovation and encouraging growth in selected productive sectors.
The Budget allocates $321 million over four years for a range of science and R&D incentives, lifting total spending to $750 million per annum.
This includes business R&D grants and assistance for firms to access new ideas, science and technology from Public Research Organisations, stronger commercialisation within CRIs and universities, and research infrastructure.
The global financial crisis was a setback for tourism. The Budget allocates $30 million of new spending in 2010/11, mostly to increase the marketing of New Zealand as a tourism destination internationally.
The Government will legislate this year to support the aquaculture sector's objective of becoming a billion dollar industry by 2025, working with industry and other stakeholders to lift regulatory barriers.
Late last year the Government agreed to most of the recommendations of the Capital Market Development Taskforce, and is in the process of implementing them.
The Government released a plan to unlock New Zealand's petroleum and mineral potential in November 2009 and has begun implementing it. This Budget funds implementation of that plan.
Water is also a key strategic resource. The Government is currently working on improving the regulatory regime, including those parts that impact storage and irrigation, as part of an efficient and sustainable water management programme.
