Turned off by the great tax switch
After years of brow-beating over our profligate ways, many of us are finally taking our medicine and paying off debt or stashing away money for a rainy day.
Is this awareness, that our day of reckoning has finally arrived, to blame for the lack of hoopla surrounding the biggest tax cuts in decades?
Finance Minister Bill English thinks so.
"People know what they will do with them," Mr English says.
"They are going to use the tax cuts to increase their savings or reduce their debt. We've been looking for this pre-GST burst [of spending] and it's not happening."
But he admits that households are also sceptical and likely to remain so until they see the money in the bank.
After so much talk about the recession and the recovery that is yet to live up to expectations, "they don't quite believe it".
Labour leader Phil Goff has a different view. He knows why people aren't spending up large in anticipation of the tax cuts - households are up against it due to rising costs across the board and a freeze on wages, he says.
Come Friday, there will be another wallop in the form of a 2.5 percentage-point rise in GST.
Far from rushing out to spend the money on a flatscreen TV, households have seen the tax cuts eaten away before they arrive.
"Everyone that I talk to as I go around, whether in Mana or Mt Roskill, is telling me things are tougher. They are having to stretch their budget more. The retailers tell me the same thing. They are having the worst time they have had for a very long time ... if there are two items, people will go for the cheap item."
The Government's May budget slashed personal tax rates from October 1, raised GST to 15 per cent, cut company tax from next year and closed loopholes favouring property investment. The package of personal income tax cuts alone is worth $14.3 billion over four years.
It is supposed to be the great "tax switch", to tilt the economy toward savings, investments and export and away from consumption and property.
That is one reason why the Government has deliberately played down the personal tax cuts: it can't afford for them to be sold as a lolly scramble.
"The story of the last 10 years is that a fair bit of our rise in living standards was debt-financed and that party is now over," Mr English says.
People felt better off during the decade, but only because "doctors' visits were cheaper, early childhood subsidies trebled, Working for Families doubled, interest on their student loans was removed and their house went up in value. But now we are getting the bill for all of that."
But Labour says the package is designed to benefit the rich.
"I know anybody on my income or a Cabinet minister's income will be laughing all the way to the bank, we will get hundreds of dollars in tax cuts," Mr Goff says. "But while the top 10 per cent of earners get 42 per cent of the tax cuts, the bottom 20 per cent get just 2 per cent."
As for the argument over whether most other workers will be better or worse off, the figures have been flying all week.
Labour argues that inflation and rising prices, coupled with the GST rise, will leave 400,000 Kiwis worse off. National insists that the vast majority of households will be better off.
Independent arbiter the New Zealand Institute of Economic Research suggests both may be right. While it says most households will be better off, its research also shows that households with incomes below $19,000 a year will get no benefit.
A single-income superannuitant household is likely to be $7 a week better off, once the tax cuts are offset by higher GST, while a household with an income of $65,000 a year is likely to be better off by only about $12 a week. That does not include potential changes to Working for Families or investment property.
But the higher up the income scale, the better off you are: those earning between $109,600 and $145,999 will have an extra $61 a week to play with.
Mr Goff says rents in Auckland are up $20 a week, rates are up, accident compensation levies are on the increase and some families are paying an extra $20 to $25 a week in childcare.
"I can spin or Mr Key can spin as much as we like; in the end it's what people experience when they go through the checkout at the supermarket that will tell them whether or not this so-called tax switch is a good thing."
TAX CUT - GST RISE DETAILS
How much difference the tax cuts will make to your fortnightly pay packet
Annual income - tax cut
The impact of a rise in GST will depend on how much households spend, but an average fortnightly figure based on income estimates the cost at:
$10,000 a year..........$6.80
HOW THE GST RISE WILL AFFECT CONSUMERS
From October 1, GST rises to 15 per cent from 12.5 per cent. Inland Revenue says it is up to businesses and retailers to decide how much of the increase to pass on. But the change could affect payments on things like layby or hire purchase agreements. IRD uses the following scenarios:
Jennifer puts the family Christmas presents on layby in February and plans to collect them in December. If she signed a binding layby agreement before May 20 this year, the retailer can choose to charge 15 per cent GST only on payments after October 1. Any payments before October 1 will be at 12.5 per cent.
But if Jennifer puts another item on layby after May 20, the retailer can charge GST at 15 per cent for the entire period of the layby unless she picks the item up before October 1.
POWER, GAS AND PHONE BILLS
Kaye gets her electricity bill for the period up to September 30. The utility can charge 12.5 per cent GST for electricity used up till September 30, but only if the bill was dated on or before September 30 and issued by October 11 with payment due no later than 60 days from the bill date.
If you sign a hire purchase agreement on or before September 30, you will be charged GST at 12.5 per cent. If you sign it on or after October 1, you will be charged GST at 15 per cent.
You are employing a tradesperson and paying them progress payments for their work. If, on or before September 30, progress payments are due to the tradesperson, payments are received by the tradesperson, or invoices are issued by the tradesperson, GST will be charged at 12.5 per cent. Otherwise GST will be charged at 15 per cent.
PRICE INCREASES ON EXISTING AGREEMENTS OR CONTRACTS TO REFLECT GST RATE INCREASE
The GST Act allows a supplier to increase their prices on existing agreements or contracts to compensate for the associated increase in GST (ie 2.5 percentage points), for example on car parking contracts and gym contracts.