Dr Deborah Russell –
There were no real tax-related surprises in Budget 2016.
But smokers will be hit in the pocket.
The excise on tobacco will go up by 10% in each of the next four years increasing the cost of a packet of cigarettes from $20 to $30 by 2020.
Reducing smoking is an excellent public health goal, but higher prices could create a black market in tobacco. This could undermine any public health benefit.
Another tax increase comes with the removal of some of the subsidies in the emissions trading scheme.
Up until now, businesses have been able to buy two emissions units for the price of one. This was a measure to help businesses following the global financial crisis.
By 2019, businesses will be paying the full price for each emissions unit – and this is a tax increase for many businesses. Of course, some won’t be affected because they are excluded from the scheme – for example businesses that are exposed to international competition, such as primary sector businesses.
The biggest tax item in the Budget is more spending on the new IT system of Inland Revenue Department (IRD).
Having a better system will make it much easier for taxpayers to interact with Inland Revenue. This will be good for individual taxpayers, and for businesses. Anything that makes complying with tax law easier reduces costs for businesses, both bottom line costs, and intangible costs.
This Budget also includes some tax measures to help small and medium-sized enterprises. The measures were announced in April and include making it easier to pay provisional tax, and reducing or even getting rid of some penalties and Use of Money Interest.
While the amount SMEs pay won’t go down, the measures should reduce the stress of paying tax.
While there was no hint of tax cuts in the Budget, tax revenue is projected to increase by about $3 billion in 2018 and 2019.
The Prime Minister suggested that there might be tax cuts in the future.
These were the numbers he was looking at perhaps.
Dr Deborah Russell is Senior Lecturer in Taxation at Massey University.