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Budget 2011 announced changes to KiwiSaver, Working for Families and Student Loans

The Minister of Finance, the Hon Bill English, read the 2011 Budget Statement to Parliament on 19 May 2011. Unlike last year, when tax reform was a prominent feature, the main objective of the 2011 Budget is to reduce the Government’s operating deficit ($16.7 billion at the end of the 2011 financial year) by 2014/15.

An estimated $5 billion of savings will arise from changes to Working for Families (WFF) tax credits, student loans and KiwiSaver. Changes in those areas, the Minister said, will not be made until after the November 2011 general election.

KiwiSaver reforms

As expected by the financial sector, the Government wants more real saving by New Zealanders who join the KiwiSaver scheme and less input from government coffers. To this end, the rate of minimum employer contributions and member contributions has increased from 2% to 3%. The current system of Kick-Start payments is unchanged, while the member tax credit is reduced to 50c per dollar of contribution. No exemption from the Employer Superannuation Contribution Tax will be permitted after 31 March 2012.

Working for Families

The WFF tax credit is to undergo only minor changes. A gradual, four-stage programme will see alterations to the abatement threshold and abatement rate.  The threshold will change to $35,000 (currently $36,827) and will abate at 25 cents in the dollar (currently 20 cents). The rate for children aged 16 and over will be aligned with the rate for those aged 13 to 15. 

The changes to the WFF scheme must be considered in conjunction with the significantly widened concept of “family income” which came into effect from 1 April 2011. The broader concept of a person’s income may include, among other things, trust income (if the person is a settlor of the trust, as defined for income tax purposes) and income of companies controlled by such trusts, along with attributable types of fringe benefit from a company controlled by the person. These changes, more than the abatement thresholds, will impact most on the ability of the more well-off to access the WFF regime.

Student loan scheme

Tighter lending criteria have been announced for student loans.

There has been no change to the general interest-free treatment of the student loans themselves but both eligibility criteria and the requirements around repayment of loans have changed.

Key initiatives include:

• restricting student loan eligibility for those with an overdue student loan repayment obligation of $500 or more who are in default for more than one year
• restricting borrowing for people aged 55 and over to tuition fees only
• removing the entitlement for part-time, full-year students to borrow for course-related costs
• holding the student loan repayment threshold at $19,084 until 1 April 2015 rather than inflation-indexing this amount, and
• shortening the repayment holiday for overseas-based borrowers from three years to one year, and requiring borrowers to apply for the repayment holiday and provide a New Zealand-based contact person before they go overseas.
   

Savings in the State sector

There is to be a three-year initiative aimed at making further savings through greater efficiency in the public sector. The programme will begin on 1 April 2012. One feature is the requirement for State agencies to bear their own costs for KiwiSaver and employee retirement schemes.

 Independent earner tax credit (IETC) from 1 April 2009

You're eligible for the IETC if you meet all of the following conditions: 

• you're an individual who is a New Zealand tax resident, and
• your annual income is between $24,000 and $48,000, and
• you or your partner:
  • aren't entitled to working for families tax credits, and
  • don't receive an overseas equivalent of working for families tax credits, and
• you aren't receiving:
  • an income-tested benefit
  • NZ Super
  • Veteran's Pension, or
  • an overseas equivalent of the above.

Contact us today for more information.