Budget 2011

Forget about the Government spin and the opposition rhetoric which are all standard for budgets and just focus on your own balance sheet and ask yourself one simple question. “What would I do, given the economy is in a recession, I have had to borrow for both working and term capital, and now my property is mortgaged up to its full value?”

Chances are your response would be “ That I need to get my debt down and fast, so I am going to focus on spending assets in growth markets, sell assets that I don’t really need and cut my overheads” and that is in effect the Governments response to their Balance Sheet. 

KiwiSaver

Changes have started to come a bit quicker, with the first change happening on the 1 July 2011, where the Government cuts its contribution from $1,024 to $512. Other changes are:

• Employee contributions lift from 2.0% to 3.0% from 1 April 2013.
• Employer contributions lift from 2.0% to 3.0% from 1 April 2013.
• Employer contribution will be taxed from  1 April 2012 reducing the value of employer contributions and of course the ultimate net worth to employees.

Income Tax

Not a lot here and nothing to get excited about. The main points are:

Livestock Valuations

• The Government has signalled a move to tighten livestock valuation rules, thus farmers will find it more difficult to achieve favourable tax outcomes by shifting between the Herd Scheme and National Standard Costs.
• There isn’t anything wrong with the valuation methods in themselves, but the ability to shelter income when livestock values increase and take deductions when values decrease is a concern, when the economy is under pressure.  As a result, the integrity of the rules does need to be shored up to ensure that the tax outcomes arising from the use of the valuation options are not open to manipulation.

Mixed use private assets

While brief on detail, the proposal seems to be targeting people who derive tax subsidised benefits of owning expensive assets. An example is the person who purchases an expensive yacht and makes it available for charter and thus turns non-deductible expenditure into deductible expenditure.

Always going to be a tricky one to police, but hey guess what’s next in the Budget?

Encouraged by last years Budget – $119.3 million over 4 years, giving an actual return of $115.2 million in the first 9 months, the government will increase funding for compliance and debt collecting.

Changes were anticipated but in reality are quite minor and are generally limited to borrowers who are less likely to repay their loans. The main points are:

• Those students in default for a year or more will not be able to borrow any more.
• People aged 55 and above, will only have the ability to borrow on tuition fees.
• Removing the entitlement  for part time students to borrow for course related costs.
• Keeping the repayment threshold at $29,084 to 1 April 2015.
• The repayment holiday will be cut from 3 years to 1 year.

Summary

Going back to our opening comments on looking at the Budget through your respective balance sheet, all the changes that needed to be made have been made and  while there might have been a surprise or two in there, our bankers would generally be happy that we were moving in the right direction and as a reward keep their interest rates down for us.