Sunday, May 23, 2010

The Budget

The Budget has been announced and it appears that landlords of residential and commercial property have been singled out as the source of all past economic evils as they are targeted for special treatment by Bill English.

The theme for this Budget for moteliers is while the government will giveth they will also taketh away. 

Deductions will no longer be allowed for buildings with an estimated useful life of 50 years or more from 1 April 2010. This effectively means that all commercial property including motels will be caught up in the net with only some industrial buildings exempt. With over 80 percent of motels leased in New Zealand, the reality of this new regime will soon be experienced by the majority of moteliers during their next rent review.

Most of of the budget's contents have been well signaled before, including the confirmation that GST will increase from from 1 October 2010 to 15 percent. This will cause some headaches for the motel industry as moteliers nervously scan their forward bookings from 1 October to see what tariff has been set in stone. There will be tariff agreements with companies, travel agencies, wholesalers etc to consider. The hardcore of business in motels comes from individual company reps that regularly stay on a month by month basis and a tariff increase will need to be communicated.

A rise in GST will also be a test Property Management System software. Those properties that operate mainstream systems and have a service contract should have a seamless ride. Unfortunately those properties that have let service agreements lapse as a cost cutting measure may have to pay dearly to bring their front office software up to spec. Updating back office accounting software may also pose similar challenges for moteliers.

Most moteliers would have booked space in the paper based guides by now, however it is not too late to tweak published tariff that will be applicable from October 2010 for 12-months.

Other changes that will affect the motel industry are tax cuts that have come as a welcome surprise with the top rate for income over $70,000 reduced from 38% to 33% from 1 October 2010.

Corporate tax drops from 30% to 28% from 1 April 2011 is great news!

The removal of the 20 per cent depreciation loading on new plant and equipment purchased after budget day is disappointing for motel leaseholds.

As previously announced, Tourism New Zealand will get a one-off $25 million increase in budget to promote New Zealand  during the lead up to the 2011 Rugby World Cup. Regional Tourism Organisations will get $5 million for joint venture initiatives with Tourism New Zealand.

Buried in the Budget was an additional $4.5 million set aside for initiatives currently being developed to strengthen and promote Maori tourism that will be administered by Te Puni Kokiri. One wonders what happened to the recent $3 million Tekau Plus project also administered by Te Puni Kokiri that was supposed to have seen 10 Maori companies earn $10 million within a decade but delivered nothing - We suspect that the latest 4.5 million handout that will only appease a small number of providers and racially chosen recipients will deliver similar results.

Tax cuts are appreciated, however moteliers will be weary of pending rises in rents, inflation, ACC levies and the increases in petrol and power tax because of the ETS.

While there will be challenges ahead for small businesses, we can console ourselves that the economy is powered by hope, optimism, sun, smoke and mirrors. The Budget seems to have been widely accepted by the general populace that will be looking forward to spending their apparent new riches and will hopefully be staying in a motel or two along the way...

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