Budget 2025: The Good, The Bad & The Ugly
Author: Garth Nowland-Foreman - LEAD Director
First, the good news is that the Finance Minister has announced no extra taxes will be imposed on charities in the May 22 Budget.
Congratulations to all those in our sector who spoke up and opposed this harmful and unnecessary proposal. Thanks also to those in the legal, accounting and other professions who supported our efforts with a reality check. At LEAD we are relieved that yet another ill-thought out policy for our sector will not be rushed through without adequate evidence and consultation.
It's heartening that the Government now acknowledges that a charity business tax would hardly raise any significant funds, and would be extremely complex in practice – which of course is one of the reasons it would increase the dead-weight compliance costs on both charities and the IRD. The IRD has already acknowledged that the absence of a special charity business tax does not provide any competitive advantage over commercial businesses – even though that’s a common misconception.
Unfortunately, the bad news is that a charity tax is still on the table. What hasn’t yet been taken on board by the Government is a charity’s business income is just another way of raising income for charitable causes (like fund-raising, other investments, government grants, etc). The current straight-forward ‘destination of income’ approach works well. If the Government thinks particular organisations don't deserve to be charities, it should address this in a targeted way, rather than take a crude tax sledge-hammer across the board.
Although we may need to fight the battle another day, hopefully at least this time the Government will carefully do its research, and involve the sector in the process, at least from here.
Unfortunately, there was also some other potentially ugly news in the Finance Minister’s budget preview yesterday. She announced that the Government has opted for the smallest ‘operating allowance’ in more than a decade. It is little more than half of what Treasury has previously said is needed just to fund the increased costs of delivering existing services.
On top of the cuts already made last year, most Government departments will have no increase to their baseline funding. If they need more funding to keep the lights in, that will need to be paid for by cutting spending elsewhere.
The Finance Minister said yesterday that they will still invest in “health, education, law and order, the defence force, business growth and targeted cost of living relief”, but that any new funding will need to come from somewhere. Unless you believe there is still a whole lot of waste and inefficiency, it will come at the cost of reduced programmes and services – which many of the people we support rely on. We hope we are wrong, but this could get pretty ugly, very quickly.