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New Zealand Budget 2024: Key Highlights and Impacts

On Thursday, 30 May 2024, Finance Minister Nicola Willis announced the government's 2024 Budget, detailing significant fiscal plans and allocations for the upcoming year. This blog post summarises the key points and impacts of the budget.


Major Highlights


1. Tax Relief and FamilyBoost Childcare Payment

The 2024 Budget introduces tax relief by adjusting tax thresholds for low and middle-income earners.

The Independent Earner Tax Credit eligibility limit rises from $48,000 to $70,000. Additionally, the in-work tax credit increases by up to $50 per fortnight from 31 July. These measures aim to stimulate the economy without causing inflation. The FamilyBoost childcare payment supports working families, particularly those with low to middle incomes, covering up to 25% of ECE fees with a maximum refund of $150 per fortnight, starting from 1 July 2024, with the first refund issued in October through IRD.


Changes in marginal tax rates:

Tax Brackets in effect as of 1 July 2024

  • 0 – $15,600: 10.5%

  • $15,601 – $53,500: 17.5%

  • $53,500 – $78,100: 30%

  • $78,100 – $180,000: 33%

  • $180,000+: 39%



2. Increased Spending in Key Sectors

The budget allocates substantial funds to essential sectors, including health, education, and policing:

  • Health: $8.15 billion in new funding, including:

  • $3.44 billion over four years for hospital and specialist services.

  • $2.12 billion over four years for primary, community, and public health.

  • $1.77 billion to maintain Pharmac funding.

  • $1.1 billion over five years to address demand and cost pressures for the Ministry of Disabled People Whaikaha.

  • Education: $2.93 billion in new funding, including:

  • $1.48 billion for school and kura kaupapa property over four years.

  • $200 million in grants for operating schools.

  • Additional boosts for school IT infrastructure and early childhood education.

  • $477.6 million for the Healthy School Lunches programme for two years.

  • Policing: $2.9 billion in total, including:

  • $226.1 million for an additional 500 police officers.

  • $424.9 million for frontline policing support.



3. Infrastructure and Natural Disaster Response

  • Transport: $4.1 billion for the National Land Transport Fund, with $1 billion to accelerate Roads of National Significance and $939.3 million to repair roads damaged during North Island weather events.

  • Natural Disaster Response: $1 billion for rebuilding and recovery of communities affected by Cyclone Gabrielle and 2023 Auckland Anniversary floods, including $939.3 million to repair roads.


Economic Strategy

The government's "cut-it-back" strategy focuses on the next four years, with spending financed through redistributions, cuts in other areas, and a reduction of approximately 4,000 public sector jobs. Fiscal surpluses are expected to return by 2027-2028, with interest rate cuts anticipated by early to mid-2025. The underlying economic outlook from the Treasury appears reasonable, providing a stable foundation for future growth.


Winners and Losers

Winners:

  • Households: The "Back Pocket Boost" benefits 1.9 million households, offering overall relief by an average of $60 per fortnight, with families with children receiving an average of $78 per fortnight.

  • Landlords: $729 million allocated to restore interest deductibility for residential rental property.

  • Māori Initiatives: $48.7 million over three years for Te Matatini from 2025.


Losers:

  • Government Debt: Increased borrowing of $12 billion over the next four years, with net debt expected to peak at 43.5% of GDP in 2025.

  • Tax Evaders: $147 million allocated to crack down on tax evasion.

  • First-Year University Students: The fees-free policy is shifting from the first year to the final year of university, saving $220 million.

  • Overseas student loan borrowers: Interest rates for overseas borrowers are set to increase from 3.9% to 4.9% from 1 April 2025.

  • Energy Programmes: Significant cuts to initiatives such as the Community Renewable Energy Fund and Warmer Kiwi Homes subsidies, totalling $38.27 million over four years.


Update from IRD

  • Inland Revenue’s budget has increased for collections and compliance. IRD will chase up outstanding returns and debt, with a focus on construction, retail, and liquor and vape shops.

  • IRD will also pursue overseas-based student loan borrowers more aggressively.


Conclusion

The 2024 Budget marks a return to prudent fiscal management while addressing structural economic challenges. It aims to provide immediate relief to households, invest in critical sectors, and set the stage for long-term economic stability. While the budget has its critics and beneficiaries, it represents a balanced approach to navigating the current economic landscape.


For a detailed breakdown of the 2024 Budget, you can refer to the governments document published on their website here - https://budget.govt.nz/

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