Wellbeing Budget 2023 – Support for today, building for tomorrow

As was signalled heavily ahead of Budget Day, Budget 2023 - Support for today, building for tomorrow, is the 'bread and butter' budget. It focuses on trying to do the basics right, with an emphasis on investment into education, health and housing, to reflect to cost-of-living issues that many New Zealanders are facing.
 
Finance Minister Grant Robertson indicated that Budget 2023 reflects the two key priorities of: supporting New Zealanders with the cost-of-living and delivering services that New Zealanders rely on.
 
The flagship policies of Budget 2023 illustrate the efforts to reduce cost-of-living pressures and include:

• Childcare: expanding 20 hours of free early childhood education to include two-year olds;

• Health costs: removing $5 prescription fees;

• Public transport: introducing free public transport for under-13s, and half priced for under-25s; and

• Power bills: providing further funding for insulation and heating retrofits.

Budget 2023 also emphasises the importance of improving New Zealand's critical infrastructure, and investing in a more productive, higher wage, low-emissions economy, including through research and technology.
 
Below, we outline particular areas of focus that may be of interest to our Watching Brief readers.

Climate-friendly infrastructure and energy

Climate resilience underpins much of the Budget 2023 announcements, given recent severe-weather events and the Government's ongoing efforts to foster a resilient, low-emissions economy. Some of the key initiatives regarding infrastructure and energy announced in Budget 2023 include:

• Accessibility to climate-friendly transport options being expanded to:

  • continued half-price fares on public transport for Community Services Card holders, and now permanent half-price fares for under 25 year-olds and free fares for children under 13;

  • investment into electric vehicle charging stations which will expand the nationwide charging network, including in rural communities; and

  • the uptake of low-emissions heavy vehicles, encouraged through a grant scheme funded through the Climate Emergency Response Fund (CERF).

• Investment into rebuilding railways, state highways, bridges, and funding for councils to upgrade local roads responds to the need for emergency repairs and resilient infrastructure.

• Property improvements will be made to schools, and repairs to Crown property following the North Island weather events.

• The early adoption of hydrogen will be rewarded by subsidising businesses in hard-to-abate industries through a green hydrogen rebate. Starting with Southland, the $100 million that has been set aside for the rebate will help to make hydrogen a financially viable option.

• Funding for initiatives for the installation of a renewable energy system in the Chatham Islands (and a possible expansion to Stewart Island, pending discussion).

• Private investment into low-emissions activities through New Zealand Green Investment Finance Limited will further incentivise climate innovation.

• A new crown infrastructure delivery agency, Rau Paenga, repurposed from the Christchurch rebuild agency will help Government organisations deliver infrastructure projects. It is already set to help with the delivery of the new Archives Building in Wellington, and the Plant Health & Environment Biosecurity facility in Auckland.

• The new National Resilience Plan will have $6 billion initial funding to focus on building back from recent weather events.

Budget 2023 has also announced that it will seek to reduce power bills and drive down climate emissions through the expansion of the Warmer Kiwi Homes programmes. This initiative will:

• deliver 26,500 insultations and heating retrofits per year for the next four years; and

• extend to add energy efficient hot water heaters and LED lights to the programme.

The scheme's expansion will be funded with $402.6 million over four years.
 
Notably, Budget 2023 has emphasised the need for a separate Infrastructure Action Plan which has been released alongside Budget 2023. It sets out in detail what is being done, and will be done to respond to the New Zealand Infrastructure Strategy. 

Climate Emergency Relief Fund

The Climate Emergency Relief Fund (CERF) is a permanent feature of the annual Budget since 2022. It supports New Zealand's climate change objectives by providing dedicated funding to initiatives that support the transition to a low-emissions and climate-resilient economy. Budget 2023 refreshes the criteria for CERF funding to include activities that help with climate change adaptation. An initiative is eligible for funding from the CERF if it:

• is included in the Emissions Reduction Plan, or directly supports emissions reductions;

• is included in a National Adaptation Plan, or directly reduces vulnerability or exposure to the impacts of climate change;

• supports a Te Ao Māori approach to the climate response;

• addresses the development impacts of climate change or the climate policy response; or

• supports the development of any initiatives meeting these criteria in the future.

$605.8 million of savings from reprioritised Budget 2022 CERF initiatives is also being returned to the CERF, topped up with an additional $1.9 billion. This leaves $1.5 billion in the CERF to continue supporting high-priority climate initiatives.

Health

Health continues to be a budget priority, although this year, it reflects the particular cost-of-living lens. The Government has announced that it will remove the $5 co-payment for prescription medicines from July this year, reducing the barrier to healthcare. It is estimated to cost $618.6 million over four years and will support 3 million New Zealanders each year in accessing medicines.
 
Budget 2023 also marks the second year of multi-year funding, with a $1.3 billion increase to address health cost pressures through:

• investing over $1 billion to health workforce pay rates and increased staff numbers, which includes $63 million for employing an additional 500 new nurses;

• putting around $99 million towards initiatives to provide primary and community care during the winter peak, with $20 million being spent to lift immunisation and screening coverage for Māori and Pacific peoples; and

• an allocation of $118 million to reducing waiting lists by investing in improving patient flows and enabling planned care to be delivered in primary care settings to free up inpatient hospital beds.

From 2024 it is also the intention of Minister Ayesha Verrall that future health budgets move to a three-year funding cycle to align with the first three-year New Zealand Health Plan, due in 2024.

Tax

The trustee tax rate will be aligned to the top personal tax rate of 39 percent from April 2024. The change will increase tax payments by trusts to ensure that the top marginal tax rate applies more comprehensively to individuals with annual incomes over $180,000.
 
Legislation to implement the change will be introduced tonight, subject to the select committee process, with the changes to apply from 1 April 2024.
 
Limited exceptions will apply to prevent over-taxation:

• Estates – as estates settle the affairs of the deceased, the new rate may result in over-taxation to the beneficiaries of the estate. To mitigate this risk, estate income distributed within 12 months would be decreased to the beneficiaries' marginal rate, not 39 percent.

• Trusts settled for disabled persons – as disability trusts will often hold income for extended periods for non-tax related reasons, rules will apply to treat all income at the disabled beneficiary's marginal rate.

The Government is also introducing a Tax Principles Bill to legislate a reporting framework that will require officials to provide data on and assess the performance of the tax system against a set of high-level principles. This regular reporting is intended to increase the public's understanding of the New Zealand tax system and to develop evidence and insights on the impacts of the tax system.

Science and research

Budget 2023 has also announced significant investments into research and development. This investment will deliver on the Te Ara Paerangi Future Pathways reforms of the public research system and is consistent with the Government's commitment to increase research and development expenditure to 2 percent of GDP.
 
One of the most significant announcements is a $400 million total capital and $51 million total operating for three new multi-institution hubs to increase collaboration in research and science. Each hub will be focused on a distinctive area of research: climate change and disaster resilience; health and pandemic readiness; and technology and innovation.
 
Budget 2023 is also:

• investing $55.3 million total operating for research and fellowships and an applied doctoral training scheme;

• investing $37.6 million total operating for New Zealand to associate with the European Union's Horizon Europe Initiative; and

• continuing to invest in the Research and Development Tax Incentive to provide a 15 percent tax credit for businesses on eligible Research and Development expenditure.

A further $74.7 million operating will be invested into Industry Transformation Plans, with a particular focus on the horticulture technology sector to support sectors affected by the cyclone, and to support businesses to upskill to address digital skills gaps.

Digital

Budget 2023 has prioritised laying the foundation for a low-emissions, high-wage economy by investing into our digital and technology sectors.
 
This investment includes the following:

• Introducing a 20 percent rebate for game development studios. This rebate will be available for game development studios that qualify and meet the minimum $250,000 expenditure threshold per year. Individual studios will be able to receive up to $3 million per year in rebate funding and the scheme will be backdated to 1 April 2023.

• Investing $27 million in a Digital Skills package that will focus on growing the tech sector workforce under the Digital Technologies Industry Transformation Plan. This funding will support the development of apprenticeship-like pilot programmes, which will include part payments for trainee wages, employer support and guidance, and will cover the set-up costs for trainees.

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.