A pass for Key, but much more to do

Last updated 14:33 09/02/2010

John Key has sketched out the direction he intends to take the Government this year. Now it's up to Finance Minister Bill English to fill in the blanks.

And there are many blanks in the speech that Key has delivered in Parliament this afternoon. Tax rates will change, but which and by how much is unknown. GST will probably go up, but maybe it won't. Property tax law will change, but we don't know how.

Working for Families won't be changed - or will it? Beneficiaries will face tougher work tests, but what? If their benefits go up because of a rise in GST, by how much? Mining will be introduced in the conservation estate, but how much and where?

Some things we do now know. Property investors have not been clobbered quite as hard as they worried. There will be no land tax. There will be no capital gains tax. There will be no Risk Free Return Method tax for landlords to pay.

Indeed, the only thing Key is promising in this area is to close the loopholes that allow mum and dad property investors to declare big losses on their rental property as a way of cutting their taxable income and clawing some tax back from the IRD. That had been well signalled, and even Labour doesn't oppose it.

We still don't know what the Government is planning on GST, but Key has hoisted a rather large kite above the Beehive with "15 per cent?" written on it. He's signalling a rise and waiting to see how big the backlash will be.

It looks as though he's leaning toward a rise, though, noting that it sends the right signals of limiting consumption growth and encouraging savings and investment instead. He's also promising to increase benefits and superannuation payments if it does go up.

Other kites are also floating in the Wellington breeze. Key hints at cuts in the top tax rate, but also a larger overhaul of the personal tax structure, which presumably means a review of the middle and lower rate as well.

No details have been provided, however, and we're going to have to wait for the Budget to know just how bold the Government is planning to be.

Ditto Working for Families. Key is basically saying lower- and middle-income families won't miss out, but he's dangling the possibility there will be a crackdown at the upper-income end, either by reducing the level at which the assistance cuts out or by making the benefit assessable on gross income - rather than net income.

There wouldn't be too many complaints if he did that. High-income earners who reduce their taxable income through rental properties so they can claim Working for Families are just ripping off the taxpayer, pure and simple.

Scientists and those who see innovation as important to our future will be pleased to see Key has earmarked it as one area that will see an increase in this year's Budget, which is just as well given National axed the Fast Forward Fund of the former Labour government. Again, no details though.

Much of Key's speech is spent traversing areas where we already know the Government's intentions, such as infrastructure investment, changes to the Resource Management Act, and reforms in the education sector. National Standards gets yet another plug.

Key has also signalled changes to the benefit system, though again we already knew of plans to toughen up eligibility criteria. These were the things put on hold during the recession, but are back on the table this year. We also know, now, that he's going to set up an independent panel to review long-term welfare dependency, which sounds like a way to cut the numbers on benefits.

Key's address is simply called "Statement to Parliament'' but it's a pretty blimmin' long statement. It's a long speech, running to 23 pages in all - too long for Key to read out in its entirety to Parliament. And it's a thoughtful one. He has touched most of the bases he needed to, and obviously a lot of work has gone into it.

There's less detail in there than I think Key had led us to expect, though he obviously has to keep some plans back to announce in the Budget. Clearly, there's still more work to be done in many areas, particularly on tax. The Government needs to see the numbers closer to the Budget before making final decisions.

He has stuck to his word, however, and given a clear outline of what the Government is planning this year.

Overall, I'd give Key an Achieved, plus a grading of "above the National standard''. There's still a lot left unsaid, though, and the proof of just how radical National is prepared to be this year won't be known until May.

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Post a comment
Alan Wilkinson   #1   02:49 pm Feb 09 2010

Seems not bad at first sight. Could easily have been a lot worse. Sidekick forecast it pretty well.

Sheelagh   #2   02:55 pm Feb 09 2010

Welfare system to be looked at . Music to my ears.

There will be a lot of people out there who will be crying . "Come back Helen. We had it real good when you were handing out the dosh.Does this mean we might have to get off our bums ? You told us John Key was a do nothing Prime Minister and just smiles all the time . He just follows in Labour's footsteps and has no ideas of his own".

Bill Brown   #3   02:57 pm Feb 09 2010

Key sounded like a PM. Optimism. Ambition. Goff sounds like a high school debater - B team. Tired left wing negativity.

jennifer   #4   02:59 pm Feb 09 2010

A pass? I guess if the pass mark gained by spelling your name right on the exam paper. We wanted certainty. We got platitudes and maybes. Pathetic.

Justine   #5   03:19 pm Feb 09 2010

Good on you John Key!

"Beneficiaries should face tougher work tests"

Why not put a five year limit to a benefit?

I also agree that there should be no capital gains tax for property owners with many many properties.

You have my support 100% Mr Key.

Wayne   #6   03:32 pm Feb 09 2010

A 2.5% in GST. An extra $2.50 for every $100 spent, hardly going to break the bank is it?

JK=JoKe   #7   03:34 pm Feb 09 2010

Great analysis, Colin. John deserves an achieved (if you're being generous), but you are all excellence.

I have just read the whole speech and feel exactly the same; I know there is some sinister tones being hinted, that have the potential to hurt a lot of lower income earners, but he appears to be delaying them to let the backlash come and go, beforing actually committing.

Lots of wonderful John Key meaningless rhetoric here, with little substance to back up his promises.

I love the emphasis on what election promises have been/are being followed through, yet ignoring the fact that changes National did NOT campaign on, are being now being proposed. I wonder if all of those harping on for a CHANGE would've been so vocal if they had known the change was to be in an increase of GST and forseeable income tax drops only for the highest earners.

bob fair   #8   03:41 pm Feb 09 2010

The message is clear and a good one.

Reward those who word hard and save - take the golden dummy from those that can't be bothered contributing.

OK so no land tax or capital gains, but property investors are entrepeneurs in their own right and take on risk. Killing the loss attributing companies under trusts was a good thing.

We're on the right path...

kait   #9   03:43 pm Feb 09 2010

Loving the benefit aspect of this speech, about time, why should we pay for you to sit on your bum while we work. Why should solo mums be able to stay home with their kids for their entire lives while some two parent families cannot afford it for even a year!!

Mike   #10   03:43 pm Feb 09 2010

Bill Brown #3 He said in effect nothing - I have always said they are labour lite but even i expected more.

Justine #5 'I also agree that there should be no capital gains tax for property owners with many many properties. ' Why - Why should trhese people pay no tax?

Now once more I ask thee where the the ideas from labour lite - all we get is a party that maintains labour policy - even hinting that we may see in increase in communisum by stealth to compensate for a GST increase. Labour lite at it's best - Mr Key prepares to sit on his hands for another year.

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