These Budget numbers are really going to tax Key's sales technique

FIRST READING - BY VERNON SMALL

OPINION: About now the Government is starting to strap down the numbers on its gruel-fuelled May 20 Budget.

Ask around the Beehive and the answer is always the same: nothing has been finalised and it would be premature to speculate on the precise tax cuts that will be part of the "tax switch" with higher GST and property taxes.

That may be true, but ministers must be perilously close to a final call, or they are going to miss the bus.

Based on last year's Budget, the economic forecasts, which drive the big fiscal numbers, will be finalised around April 10. The final fiscal forecasts are usually completed a couple of weeks later.

Finance Minister Bill English's core argument for the tax changes will be more altruistic than most voters' personal interest: that they are designed to improve the fundamentals and incentives in the economy by boosting savings, exports and business investment while reducing consumption, borrowing, government spending and investment in property.

His first problem has been selling the rise in GST from 12.5 per cent to 15 per cent in the absence of a precise number of compensating dollars - a quid or two for the pro quo.

Labour has tried to make the most of that information vacuum with its "Axe the Tax" bus. It has completed its journey from somewhere up north to a long way down there, ending for those still on board with a liquid night around Dunedin's hostelries.

Its impact, beyond caucus headaches, is hard to judge. Labour's spinners report strong interest, but others in the party lament the lack of cut-through and connection even when leader Phil Goff is on board.

Meanwhile, the polls remain National's most devoted friend.

The Opposition has also been hobbled by its inability to promise definitively that it will cut GST if it wins power - though Mr Goff's comments about the difficulties of unscrambling an omelette suggests they will not be going back to the egg.

Labour may have achieved its primary aim of reconnecting with some core voters and hammering its new best "narrative" - that it is for the many (who will pay more GST) not the few (who are going to get the biggest tax cuts).

But it must know that only if the economy was booming and cash was flooding into the Government's coffers - or if pigs started gliding by - could Labour promise a cut to GST without the need for a politically unpalatable tax rise elsewhere to fund it.

National's next selling job, and a much more difficult one, will come once it releases its Budget tax tables. They will inevitably show big gains for top-income earners if, as expected, the top rate is slashed from 38 cents to 33c, and much smaller gains further down the food chain once the offsetting cost of GST is included.

So those on incomes up to $25,000 a year are likely to break about even, with the extra cost of GST balanced by a couple of cents off the two lower tax rates.

(Some marginal changes to the thresholds are also possible. Moving the 33 per cent threshold up from $48,000 to $50,000 seems tidy, but bigger movements are considered too expensive.)

Those between the minimum wage and the average wage, roughly $25,000 to $50,000, will receive only slightly more - maybe $10 to $20 a week - and those above that will show big gains: as much as $65 a week for those on six-figure salaries.

Of course, within a fiscally neutral package, this calculation, which shows everybody gains and no-one loses, amounts to political alchemy.

The missing link - and the missing coin - comes from the extra revenue generated from property investors, specifically from chopping depreciation on buildings.

The Treasury has found the Tax Working Group's assessment of up to $1.3 billion from that source is far too optimistic, but it could still deliver between $700 million and $1b.

The extra property tax will principally hit those earning over $70,000, who stand to benefit most from the cut in the top tax rate. The Government's modelling shows that this top group - after netting off GST, tax cuts and the impact of higher property taxes - will on average be slightly worse off.

But try telling that to the average punter, when the bald tax tables show wealthy earners pocketing upwards of $65 a week each.

* * *

John Key's sales technique will be tested to the limit. He had better hope he does a better job than Steven Joyce's hamfisted announcements about the SuperGold Card or, for that matter, his own claim this week that the review of mining on conservation land had been "expanded" a couple of weeks ago to include land outside schedule 4 - where mining is specifically banned with few exceptions.

That was plain wrong, and it is time he admitted it. The stocktake had always included the non-schedule 4 land.

The mining review was expected some weeks ago, but has joined reforms of the state sector and Whanau Ora and the stocktake of ACC on the slow burner.

They will not have the same high profile as the tax cut-tax rise package.

But some will need to be brought to book, come May 20, if the Government's promise of a step-change in the economy is to be something more than a tax package that looks like a handout to the better off.

- © Fairfax NZ News