It's time for some genuine relief

It's less than a month until Finance Minister Michael Cullen unveils his budget and his difficulties are mounting, the Nelson Mail said in an editorial on Wednesday.

Property investors are sweating, there is a groundswell of concern about the rising cost of living and now there is a new report claiming that the number of children living in hardship rose by a third between 2000 and 2004, taking the rate to one in four.

Dr Cullen has finally promised tax cuts but he is under increasing pressure to deliver them straight away instead of putting it off until the previously mentioned date, April 1 next year - and there is a fresh clamour for removing GST on food.

This is a superficially attractive option, especially if it is restricted to staples such as fruit, bread and dairy products. There is something wrong when, in the midst of a dairy bonanza, a family favourite such as cheese is priced nearly off the market for many families, and a 12.5 percent price cut would help to make it affordable again. But although the selective application of GST is used in almost all the OECD nations - Japan and Denmark are the only other exceptions - it creates serious administration difficulties.

Remove it from so-called healthy foods - a moveable feast at the best of times - and there would be endless wrangling about what fits the bill and what doesn't. Take it off all food and there would not only be further arguments - is beer food? - but also fresh demands to extend the exemptions. Already, removing GST from fuel is gaining suppport.

While there is a strong case for exempting local authority rates from GST - a tax on a tax, as proponents of this argument correctly point out - cleanly applying it to real goods and services works best across-the-board, and neatly captures all purchasers, even the most adroit tax-evaders. Besides, doing away with GST on food would deprive the Government of about $2.4 billion a year and that would apply pressure to gather the money some other way. With income tax cuts to be announced shortly, doubling up by cutting GST would be taking too much out of the revenue-gathering system and bring harmful cuts to government spending.

Prime Minister Helen Clark has promised "very, very timely" relief for families in the budget, which Dr Cullen will unveil on May 22. There are signals that this will involve not only the much-anticipated cuts to income tax, which will have to be substantial to impress voters, but also an expansion of the Working for Families scheme.

With one in four families reporting that they're worried about their rent or mortage, the price of filling a supermarket trolley rising more than a quarter in a year and the new report on child poverty painting such a dark picture, public expectations are high - and Dr Cullen is in a tight spot, especially with an economic downturn looming ever larger.

Most importantly, the Government should recognise that the combination of higher mortgage, food and fuel costs does not only hit those who qualify for its Working for Families package. Beneficiaries, pensioners, students, and many single and childless workers are also struggling.

While the first priority must be to address child poverty, and those who have played the property market unwisely are undeserving of sympathy, Dr Cullen and his colleagues must deliver genuine relief, not because it will improve Labour's chances of re-election, but because many New Zealanders are hurting.

- © Fairfax NZ News