Tax cut expectations low

Last updated 05:00 23/06/2014

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Most New Zealanders do not expect to be offered the prospect of tax cuts in the coming months, despite hints from the prime minister.

If the Government does propose cuts, they seem destined to be so small that few voters would describe them as "meaningful".

Asked in the latest poll if they expected the National Party to offer personal tax cuts before the September 20 election, only 29.7 per cent of respondents said yes, while 60.5 per cent said no.

The remaining 9.8 per cent didn't know.

On the eve of May's Budget, John Key said that, while there was limited "freeboard" available for the Government if it was to avoid driving up interest rates and reduce debt levels, an expected return to surplus in 2014-15 gave scope for new initiatives.

"And they would obviously be spending by the Government or alternatively returning that through some sort of tax programme."

The statement was taken as the clearest signal so far that National would campaign on a platform of tax cuts at the election, but Finance Minister Bill English said on Friday he was not surprised expectations were not high.

"People are pretty realistic, the surpluses [in coming years] aren't large.

"The only possible tax cuts would be quite modest," English said.

The warning of modest tax cuts at best suggests most voters would not deem any programme offered by the Government as meaningful.

Only 23.2 per cent of respondents to the poll said tax cuts which gave them up to $20 a week extra would be meaningful. A third of those polled said only a tax cut of more than $40 a week would be meaningful.

In May's Budget the Government increased its scope for annual increases in new initiatives from $1.1b to $1.5b. However, English said that would have to be split between new spending and tax cuts, while there was also the option of reducing debt, which is already $62b and yet to peak.

English refused to be drawn last week on how much might be available in tax cuts or how they might be distributed as it would be wrong to speculate when calculations had not been done.

However, it is believed any tax cuts would be unlikely substantially to exceed, if they exceeded it at all, the extra $400m earmarked for new Budget initiatives from 2015.

Were there to be tax "cuts", they are believed likely to be delivered at least in part not by reduced rates, but increasing the current tax thresholds.

Those earning over $70,000 a year pay 33 cents in the dollar in income tax, and English is understood to have an issue with the fact that the average wage, forecast to exceed $62,000 by 2018, is creeping towards the top rate.

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But increases in thresholds, if allocated across the board, would be expensive and take up much of the spending "freeboard".

According to Treasury estimates, raising each of the three income tax thresholds ($14,000, $48,000 and $70,000) by $1000 would cut tax revenue to the Treasury by $280m a year.

However, the biggest winners in this scenario, anyone earning $71,000 or above, would reap $225 a year or $4.33 a week.

Bigger increases to the top tax would cost the Treasury less than raising the lower thresholds because fewer earners would benefit. However, that would likely make it less of a vote winner.

Although some have lobbied for a new tax-free band for the first portion of annual earnings, that is understood to have been ruled out.

- The Dominion Post


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