Budget 2015: Modest tax cuts flagged for 2017
Potential "modest" tax cuts are being flagged for 2017, even as the Government expects a wafer-thin surplus in the coming year.
Finance Minister Bill English's "give-and-take" Budget on Thursday shows a surplus of just $176 million is expected in the 2015/16 year; just making it back into the black after a deficit of $684m in the latest year.
But that is expected to rise to $1.5 billion in the following year.
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The Budget gives to taxpayers in the form of lower ACC levies, but takes with the other hand by cutting KiwiSaver $1000 kick-start payments. The Budget also adds to the costs of international travel with a new border arrival and departure tax.
English said the Government books were healthy and allowances for more spending remained unchanged, at $1b more in each of the next couple of years. That rises to $2.5b in 2017, an election year.
"The higher allowance in 2017 provides options for modest income tax reductions should fiscal and economic conditions allow," English said in his Budget speech.
English said the $2.5b would provide for "moderate" tax cuts, but if economic conditions were worse than expected they could still run a surplus.
Despite a growing economy, low inflation meant tax revenue was not rising as fast as earlier expected.
The government is expecting "sustained solid growth" averaging just under 3 per cent in the next three years.
"Growth matters for jobs and wages," English said, with Treasury forecasting the average wage to rise by $7000 a year to $63,000 a year by 2019.
Despite unemployment remaining stubbornly high at 5.8 per cent recently, the Government is forecasting that to drop to 5.1 per cent by March next year and eventually to 4.5 per cent by 2019.
That would see an extra 150,000 jobs by the middle of 2019.
In 2011, Treasury forecast jobs growth of 170,000 by the middle of this year and that had already been achieved, with three months to go, English said.
Economic growth of 3.1 per cent is forecast for the year to March 2016, supported by the present migration boom, low interest rates and building work. The summer drought was expected to have had a small impact on growth in the first half of this year, 2015.
But growth is expected to cool down as the high migration slows down, construction work cools and interest rates start to rise. Government spending was also expected to stay "subdued" and the high dollar would also act as a headwind for the economy, too.
Lower dairy prices are also expected to slow growth.
The Government, as already flagged, is cutting ACC levies, giving back $375m to taxpayers in 2016. The levy cuts, a de facto tax cut, follow reductions that have totalled $1.5b since 2012.
The average car levy could drop to about $120 next year, about a third of current levels.
Dropping the KiwiSaver kickstart payment for new enrolments will save the Government about $500m over four years. At about $125m a year that is almost equal to the expected Budget surplus next year.
The kickstart payment was brought in when the KiwiSaver scheme was new, but English said it was no longer needed, given the success of the scheme.
The Government was also raking in more cash from foreign tourists and Kiwi travellers with a "border clearance levy" that will raise about $100m a year.
While the Government was giving back to taxpayers through lower ACC levies and has flagged possible income tax cuts in 2017, English said any further headroom would be used to cut Government debt faster.
Net debt was expected to peak at 26 per cent of GDP before falling, dropping below 20 per cent of GDP by 2020.
New Zealand was returning to surpluses earlier than most comparable countries and would have much lower debt levels than others in the OECD.
Key economic assumptions:
Migration falls from 56,600 a year in the middle of this year to 12,000 a year by mid-2017
Oil assumed to rise to US$78 a barrel by 2019
Dairy prices are expected to recover at a modest rate, returning to about US$3900 a tonne by the end of 2016
Short term wholesale interest rates to stay steady at 3.6 per cent until the end of 2016 before rising to 4.9 per cent in 2019