25 May 2017

Budget boosts family incomes and raises tax thresholds

9:16 pm on 25 May 2017

Lower-income families are the winners in the election-year budget with a $2 billion a year boost for Working for Families and the accommodation supplement, and a rise in tax thresholds.

The two lower tax thresholds increase; the $14,000 threshold to $22,000, and the $48,000 threshold to $52,000.

This will mean a weekly tax reduction of $10.77 for those earning more than $22,000 a year, and $20.38 for people on incomes above $52,000.

The government estimates about 310,000 families will benefit from its Working for Families changes, under which tax credits for younger children are being increased.

The new rates will be up to $101.98 per week for the eldest child in the family, then up to $91.25 per week for all subsequent children, regardless of their age. But the abatement rate also goes up, from 22.5 percent to 25 percent, and the point at which payments start to reduce kicks in at a lower income ($35,000 rather than $36,500).

The Independent Earner Tax Credit has been axed, with Finance Minister Steven Joyce saying only a third of those eligible were claiming it. He said those people would benefit from the tax threshold changes instead.

Listen or watch Checkpoint with John Campbell's interview with Mr Joyce on Budget 2017

Accommodation supplement

The maximum accommodation supplement for a two-person household increases by between $25 and $75 per week, while the maximum for larger households increases by between $40 and $80 per week.

More areas are eligible for higher payments. For example, people living in tourist hotspots such as Queenstown, Wanaka and Tauranga, and in all Auckland suburbs, will join central Aucklanders in getting the top accommodation supplement payments.

The accommodation benefit paid to students will also increase, by up to $20 per week.

Steven Joyce said superannuitants would gain from the tax threshold changes and some will also benefit from the increase to the accommodation supplement.

Mr Joyce estimates that, overall, the Family Incomes Package would benefit about 1.3 million families in New Zealand, by an average $26 per week.

The changes come into effect on 1 April 2018.

Housing

The budget allocates $205m dollars of new money over the next four years for social housing.

Of that, about $175m will go into emergency and transitional housing.

Just over $13m will go into a new initiative called the Positive Housing Pathways programme, which will buy 250 social housing places and support services for people leaving prison.

The Housing First programme, launched in Auckland earlier this year, will be expanded to help homeless people in other parts of the country.

Rail

The country's rail network will get $548m of new money.

That includes $450m to be invested in KiwiRail over the next two financial years.

Transport Minister Simon Bridges said the government wanted to put the rail network on a longer-term sustainable footing, but would be conducting a wider review of KiwiRail operating structure and capital requirements.

He said restoring the South Island Main Trunk Line was a priority and the intention was to have this open again by the end of the year.

The government is also investing $98.4m in Wellington's metro rail network.

The first tranche of funding for Auckland's City Rail Link has been confirmed in the budget, with $436m of new over four years to go into the project.

Health

The health budget has increased by $3.9 billion to a record $16.8bn.

District Health Boards get an extra $1.76bn over four years.

The new money includes $1.4bn in wage increases for care and disability workers as part of the pay equity settlement, and $205m for disability support services.

An extra $60m will go to Pharmac to fund new medicines, and and extra $52.2m goes to emergency ambulance services.

Primary care receives extra support of $9.5m a year for the next four years; and there's $38.5m over the next four years towards the long-awaited staged roll-out of screening for bowel cancer, beginning in July.

The government has also announced a boost of $224m over four years for mental health services.

That money is being spread across a range of initiatives, including $100m going into a new social investment fund to target new proposals to tackle mental health.

The Ministry of Social Development will get $4.1m to trial integrated employment and mental health services, and $11.6m goes to help the Corrections Department better manage and support prisoners at risk of self-harm.

Education

The Budget adds $1.5bn over the next four years in new spending on schools and early childhood education, but half that is simply keeping up with growth in enrolments and teachers' pay rises.

Schools get a 1.3 percent increase to their operations grants, as well as a 2.7 percent increase to the recently-introduced pool of funding targeted to children with particular risk factors, making for an overall rise of $17m per year.

Early childhood centres receive no increase to their per-child subsidies for the third consecutive year, though the Budget provides $10m per year to raise the amount of extra funding they receive for enrolling children from disadvantaged backgrounds.

The Budget also includes about $10m per year to provide more behaviour services to 1000 more children in early childhood services and schools.

It allocates $456m over the next four years for school property including six new schools and 305 new classrooms.

For tertiary education, there's a 1 percent increase in the subsidies tertiary institutions receive for each student they enrol, worth nearly $20m per year.

Economy

The government is forecasting stronger economic growth, driven by robust population growth, investment in construction projects, booming tourist numbers and a rebound in exports.

Treasury is forecasting growth will rise from 3.1 percent in the June 2017 year to peak at 3.8 percent in 2019, before easing back.

But it warns there are threats, including a rise in protectionism globally, debt-fuelled growth in China, and the effect of rising interest rates on the housing market in New Zealand.

An additional 215,000 people are expected to be in work by 2021, though unemployment is set to remain at 5 percent over the next few years before easing to four-point-three percent.

The stronger economy will boost the government's coffers, with rising surpluses predicted over the next five years.

Excluding investment gains and losses, the Treasury forecasts a $1.6bn surplus in 2017, climbing to $7.2bn in 2021.

The surpluses are smaller than earlier estimates, mainly due to the government's tax and income support changes, which are estimated to cost about $2bn a year.

New capital spending on roads, rail, schools and hospitals has been increased by $4bn over the next five years.

Net debt is also set to decline over time to under 20 percent of gross domestic product by 2021.

Want more detail? Read RNZ's full Budget coverage here.

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