Budget tax changes underwhelm

05:56, May 24 2012

Tax experts say the extra $78.4 million Inland Revenue received in today's Budget for tax compliance is unnecessary.

On top of the $119.3m the IRD was given in the 2010 Budget to strengthen its compliance and debt activities, the Government has announced it will boost this by another $78.4m for chasing unfiled returns and debt collection.

The government estimates the latest spend will net it $345m more in tax income over four years.

Ernst & Young tax partner Jo Doolan said this was a negative approach.

"Once again we see the Inland Revenue getting more money to target taxpayers. A change of focus to provide positive rewards for compliant taxpayers would have been a positive message, however this was lacking. We still have the veiled threats to enforce voluntary compliance."

New Zealand Institute of Chartered Accountants tax director Craig Macalister said it was giving the IRD extra money for work they should have been doing anyway.

"I think they've got sufficient staff resources in there at the moment to adequately police and monitor their tax audit and investigation functions.

"The economy is still quite depressed and the IRD debt load is increasing. The normal line with extra funding to IRD is that for every dollar we put in we'll get a return on it but I would have thought it could just work more efficiently and still get those returns without extra funding."

However he said the axing of three tax credits in this year's Budget was understandable.

The National Government has announced it is removing three tax credits that it says will save the country $117m.

One of those to go is the childcare and housekeeper tax credit that was last updated in 1985.

It has been superseded by other policies including the $2.7b Working for Families subsidy and the $1.4b annual spend on early childhood education, the government says.

Macalister said the government already subsidised early childhood education heavily.

"In many ways it probably should have been cut at the same time they introduced the creche subsidies, plus Working For Families pretty much covers that stuff now. Nevertheless some people will be disappointed to see that go because it was a little bit of a bonus they could get back through the tax system."

The other two tax credits getting the chop are the credit for incomes under $9880, and the tax credit for children. It will be replaced by a limited tax exemption to ensure that children will not need to file a tax return if they earn small amount of in-the-hand income. Macalister said these minor changes made administrative sense.