BUDGET 2011

The main points of the Government's 2011 Budget:

• Zero new spending. Last year's budget provided $1.1 billion. This budget takes $5.2b from existing government spending over five years allowing $1.2b a year over the next four years for new operating spending. Savings come from across government agencies and from changes to KiwiSaver, Working for Families and Student Loans. Forces the public sector to find $980m in savings over three years  Most of the money, almost $4b, goes to new initiatives in areas like health and education.  Delivers $2.2bn to public health services over the next four years, directed at training, maternity initiatives, improved access to medicine, elective surgery, disability support  and GP visits.  Schools and early childhood education get an extra $1.4bn up to 2015. The rest goes on reducing the deficit. Within departments, $1.5b is being reprioritised to fund different priorities.
• The operating deficit will hit $16.7b this year -- nearly double what was estimated in last year's budget -- but it will then reduce substantially, down to $9.7b next year, $4.1b in 2013, and $0.7b the following year before going achieving a surplus of $1.3b in 2015.
• Measures are outlined to tackle the $8.8b cost of the Canterbury earthquakes. Of the total, $3.3b will be paid by the Earthquake Commission and ACC. A government Canterbury Earthquake Recovery Fund of $5.5b over six years covers the Government's infrastructure, assets and emergency response costs, $740m comes from existing funding in the budget, from a new Canterbury Earthquake Kiwi Bond with the difference from other government bonds.
•  Plans for partial asset sales for State-owned energy companies and a reduced shareholding in Air New Zealand are expected to raise $5b to $7b.
• KiwiSaver, Working for Families and Students loans will be pared back.

  - For KiwiSavers that means a halving of the member tax credit while their employers will now pay employer superannuation contribution tax. From 2013 employers will have to contribute at least 3 percent (up from 2 percent) while employees will have to pay the same amount more.

  - Working for Families changes will revise abatement thresholds so wealthier people are less likely to be eligible.

  - Student loans will be restricted for those with overdue payments and people aged over 55 will only be able to get loans for tuition fees. Part-timers will be able to borrow less and the repayment holiday for students who go overseas will be reduced to one year from three.

• Legal aid and tackling white collar crime make up the majority of a $157m boost to the justice sector
• Almost $100m will be channelled into social development to get more young people into jobs and for community social services
• Infrastructure gets a $1.6b boost, including almost $1bn for ultra-fast broadband and $250m for rail. Just over $100m has been allocated to fixing leaky schools.
• Changes flagged to tax treatment of assets used for both private and business purposes, such as holiday homes.
• Review of farmers' options for valuing livestock for tax purposes. Current "herd" or "national standard" schemes allow farmers to switch back and forth between them so that value increases go untaxed.
• Government to consider new sharemarket-listed passive debt and equity investment vehicles to offer easy access to capital markets for investors.

Please note that all these changes dont come into place immediately

 

KIWISAVER CHANGES IN THE BUDGET

The Government's weekly contributions to KiwiSaver will be sliced in half by changes announced in the Budget.

The Budget confirms a series of changes to the  scheme with the  members and their employers asked to bump up their minimum contributions from 2 to 3 per cent of income, and the Government halving its member tax credit.

The first step, on April 1, 2012, will see tax introduced on the full minimum two per cent employer contributions. Currently, tax only applies to employer contributions over two percent, so the change will reap more revenue for the Government and initially shrink the amount going in to KiwiSaver accounts.

Three months later, on June 30, 2012, the member tax credit will be halved from the current dollar for dollar contribution by the Government down to 50c. That means the maximum member tax credit paid out by the Government will fall from $1040 per annum to $521.

Nine months after the Government's contribution is halved, employers will have their minimum contributions lifted from two to three per cent. At the same time, on April 1, 2013, workers will also be required to lift their minimum contributions from two to three per cent.

The $1,000 Kick-Start is unchanged. 

 

TAX TREATMENT WHEN CASHING UP ANNUAL HOLIDAYS

Changes to the Holidays Act 2003 now allow employees to "cash in" up to one week of their annual leave entitlement. The following  clarifies the tax treatment of this payment to employees.

If an employee and employer agree to cash up a weeks annual leave it should be treated as an extra pay or unexpected bonus. As it's taxable income, PAYE should be calculated using the rates for extra pays. Your employees may need to check the correct amount of PAYE has been withheld over the tax year.

Your employee's Child Support liabilities and Working for Families Tax Credits entitlements may also need to be adjusted if their family income has changed.

 

LABOUR LAW CHANGES

On 1 April, 2011, new changes to Employment Legislation came into law. The Department of Labour Website has been completely updated with this information.

Information about the following, and other relevant,  subjects,  is available on the above website:

• Minimum employment rights
• Starting and hiring
• Holidays and leave
• Pay
• Solving problems
• Ending the employment relationship

Changes to Employment Agreements

From 1 July 2011, all employers will be required to:

• Retain a signed copy of the employment agreement or current signed terms and conditions of employment for all their employees; regardless of when your employees started
• Provide a copy of the agreement on request to their employees (including casual and fixed-term employees).

Labour Inspectors will be able to seek a penalty in the Employment Relations Authority where employers do not comply. Employers will be given written notice and have seven working days to fix the issue before they risk a financial penalty for breaching the law.