National MP breaks ranks over Budget charity tax credit cap

First-term National MP Greg Fleming has publicly criticised his own government's decision to cap the donation tax credit at $100,000, telling a charity sector hui in Wellington on Thursday that the policy has "zero" logic and predicting further changes (RNZ).

Fleming, the MP for Maungakiekie, made the remarks at a political hui when asked about the reasoning behind the cap. He described it as a "sledgehammer to crack a walnut" and said there were a "myriad" of ways to address the misuse of donor-advised funds without imposing a blanket cap.

At Budget 2026, the government changed the charity tax credit rules so donors receive no tax credits on donations above $100,000. Under the existing rules, individuals can claim a third of their charitable giving back as a tax credit, provided their donations do not exceed a third of their annual taxable income (RNZ).

The cap, which takes effect on 1 April 2027, will affect roughly 350 donors, representing about 10 percent of donations claimed or about $103 million. According to a regulatory impact statement from Inland Revenue, the government spends approximately $350 million a year on donation tax credits (RNZ).

Revenue Minister Simon Watts, who announced the change at the Budget in May, said the cap would ensure the donation tax credit scheme remained financially sustainable and limit tax-planning risks where donors gave to charities they controlled. IRD's regulatory impact statement said there was no conclusive evidence the credits lead to more giving, and flagged risks of bad actors claiming credit in advance of funds being applied to charitable purposes or deriving a private benefit (RNZ).

Fleming said he understood why the cap had been brought in but argued the misuse of donor-advised funds could be addressed through more targeted measures. He told the hui that work was underway to "fix" the cap. Watts contradicted that, saying Fleming's comments were not correct and the government's position had not changed since the Budget (RNZ; NZ Herald).

Watts confirmed the change does not come into effect until 1 April 2027 and only affects donations above $100,000. He said IRD is continuing to engage with the sector on the change.

Budget 2026 included a package of tax changes the government said were intended to strengthen the tax system, encourage investment and improve compliance, according to the Revenue portfolio (Beehive). Crown tax revenue was expected to be more than $9 billion higher, and the Budget funded a temporary $50-a-week increase to the in-work tax credit (Beehive).

On the charity side, Budget 2026 also raised the threshold for non-taxable net income a not-for-profit organisation can earn from $1,000 to $10,000 (Beehive).

The broader context here is a first-term government MP publicly contradicting his own minister on both the merits of a Budget policy and whether remedial work is in train. Fleming's suggestion that further changes are coming directly clashes with Watts's insistence that the government's position is settled. For the charity sector, the cap's impact is concentrated on a small number of high-value donors, but those donors account for a disproportionate share of claimed credits. Whether IRD's engagement with the sector produces any adjustment before the April 2027 commencement, or whether the government holds the line, is the question the sector will be watching.