Budget 2008

Tax Cuts for workers on 1 October 2008

Subtitled "A Fair Economy; A Strong Future" Budget 2008 delivers the long awaited personal tax cuts, but not immediately. The changes will be progressive over the next three and a half years. The central shift focuses on a gradual uplift to the current tax tiers, with an immediate reduction in the minimum rate from 15% to 12.5%.

The following schedule sets out the proposed changes:

	NEW RATES
Current Rates	From 1 October 2008	From 1 April 2010	From 1 April 2011
15% to $9,500	12.5% to $14,000	12.5% to $17,500	12.5% to $20,000
21% to $38,000	21% to $40,000	21% to $40,000	21% to $42,500
33% to $60,000	33% to $70,000	33% to $75,000	33% to $80,000
39% over $60,000	39% over $70,000	39% over $75,000	39% over $80,000

What does this mean for Employers?

Payroll Systems

Your payroll system will need to be updated prior to the effective date of 1 October 2008 when you have to implement the new tax rates.

If you make employer contributions to a workplace super scheme, other than a KiwiSaver scheme, and have elected to use the progressive scale for the deduction Employer Superannuation Contributions Tax (ESCT - formerly known as SSCWT) then you may have to recalculate which tier your employees will come under with effect from 1 October 2008. The progressive ESCT rates effective 1 October 2008 will become:

ESCT rate threshold amount Tax Rate

$0 - $16,800 12.5%

$16,801 - $48,000 21%

$48,000 upwards 33%

How will the person tax cuts affect the Portfolio Investment Entity (PIE) tax rates that are applied to managed funds like KiwiSaver?

The PIE tax rates and thresholds will remain the same for the time being while government officials discuss the impact of the tax changes with the managed fund industry. These current rates are 19.5% and 30%. The government will decide later whether any changes to the PIE tax rates should be made. Government has reminded the industry and investors that as PIE tax is a final tax there will be no need to file a tax return to account for the rate changes.

Funding to protect investors

The government will spend $6.1m of operating funding over the next for years and $2.9m of capital funding for the implementation of new laws to improve the supervision of financial advisers and institutions. Additional operating costs of $5.1m and capital costs of $1.4m will be paid for by the industry.

The funding will allow financial service providers to be registered and set up dispute resolution schems, and will enable the Securities Commission to undertake a role in the licensing of financial advisers.

This is a clear signal that the mooted changes to the Fiancial Advisers Bill and Financial Services Providers (registration and Disputes Resolution) Bill, under which the Securites Commission will take a leading role, in place of Approved Professional Bodies, will be implemented.

Other bits of interest?

Budget forecasts reveal continued support for the current KiwiSaver sweeteners at least until 2011.

Under the heading of 'Economic Transformation' government will fund $164.6m towards the redevelopment of Eden Park to host the 2011 Rugby World Cup.