Published: 14 April 2022
Impact of interest rate changes to taxpayers
Interest rates have, until very recently, been at historic lows as central banks in both New Zealand and around the world looked to counter the economic shock of the Covid-19 pandemic. This has been beneficial for our clients because we've been able to offer very low rates for financing tax. While this still remains the cheapest option for flexibly managing your (or your clients) tax, we have had to increase these as the cost of money has increased. This means the differential between purchasing tax later and financing tax upfront has therefore decreased.
Interest rates have increased for all industries as a result of the lift in the Official Cash Rate (OCR). The OCR has risen in response to rising inflation, which towards the end of last year was sitting at 5.9%. The Reserve Bank of New Zealand aims to keep inflation between 1% and 3% over the medium term, with a focus on keeping future average inflation near the 2% target midpoint.
The strategy of lifting the OCR over the short- to medium-term is to quell inflation and maintain price stability. The OCR is currently forecast to rise to levels it was sitting at back in 2016-17, during more ‘normal’ times in our economy.
The time of historically low interest rates may momentarily be over - mortgage, borrowing and savings rates are correspondingly increasing as a result of the lifting OCR. The cost of money is currently expected to keep rising, with the situation accentuated by higher oil prices, rising transport costs, and the impact of supply shortfalls.
Tax Traders will continue to offer competitive interest rates for taxpayers, in line with market rates, so taxpayers will still be up to 30% better off than late-paying Inland Revenue directly, all the while providing cash flow flexibility for taxpayers and market-leading tools to make provisional tax a breeze.
As well as cash flow flexibility, other benefits to financing tax include having the certainty of tax funds at a certain date (and for a fixed price), hedging an uncertain tax position, as well as optional feeGuard (adding insurance to finance fees, where taxpayers will receive a refund of the portion of the finance fee on any unused tax). feeGuard is currently offered complimentary as an additional benefit exclusive to Tax Traders clients.
Looking to set up a finance arrangement for 7 May provisional tax? Because it falls on a Saturday, you have until 10pm Monday 9 May to deposit with Tax Traders. Log in here.
The team is on hand to assist with any questions or queries you may have regarding tax pooling. Please phone us on 0800 829 872 or email email@example.com and we will be happy to help.