Thursday 12 May 2016 01:43 PM
English takes election year tax cuts off the table
By Pattrick Smellie
May 12 (BusinessDesk) - Finance Minister Bill English has all but ruled out income tax cuts in the government's 2017 election year Budget.
In his traditional pre-Budget speech to the Wellington Chamber of Commerce, English said the government would prioritise repaying government debt over new spending and tax cuts in the next five years.
"With continuing tight fiscal conditions, we don’t currently have an explicit provision for tax reduction in the fiscal forecasts," said English, pointing to the fact that low inflation is leading to lower growth in the nominal size of the economy, reducing growth in the nominal total tax take.
"At this point, we’ve prioritised additional debt repayment over setting aside money in Budget 2017 for tax cuts," said English. "However, we are still committed to cutting personal taxes over time, and will consider these – either in Budget 2017 or after – as and when the fiscal situation improves. In particular, we want to address the higher marginal tax rates faced by low and middle-income earners as their incomes continue to rise."
The May 26 Budget would also show that the government's original plan to spend an extra $1 billion this year and $2.5 billion next year - potentially to fund tax cuts - would change to see more spent this year in response to funding pressures and less next year.
It would also be shaving a total of $1.2 billion off its new spending allowances over the next five years, English said.
"Although our debt levels aren’t high by international standards, we could be stretched if another economic shock or natural disaster hit," said English, recommitting the government to bring net government debt down to around 20 percent of gross domestic product by 2020, after it peaked at 25 percent of GDP after the Canterbury earthquakes and global financial crisis.
He also signalled that the capital spending programme on one-off infrastructure and public assets would be lower than previously forecast, but that additional investment would be funded "by reprioritising within the Crown’s large balance sheet."
"These changes to the allowances will reduce spending by around $1.2 billion over the next five years, helping to further reduce debt and meet the government’s 2020 net debt target," English said.
Responding to yesterday's financial stability report from the Reserve Bank of New Zealand, English said he agreed with central bank governor Graeme Wheeler that house prices were rising too quickly and need to be contained, but put the responsibility for that squarely at the feet of local governments.
The government was looking particularly to the Auckland Council's Unitary Plan, on which final decisions are due mid-August, to make big strides in freeing up land for development, urban intensification rules, urban boundaries, and the costs and delays associated with council planning and approvals.
"In the end what matters most is the ability to build houses," said English, who offered no comment in his speech notes on the RBNZ's development of options for new loan-to-income ratio lending rules. "This isn’t a problem extra money in the Budget can solve."
Very little low-cost housing had been built recently, falling from a third of all houses 25 years ago to less than 5 per cent today.
"This is the consequence of planning rules that, for example, limit house heights, set minimum lot sizes and maximum site coverage, force high ceilings, and demand lounges that face the road. Poor planning can lock low and middle-income households out of affordable housing," English said.
"The government’s very clear expectation of Auckland Council is that it will approve a plan in August that delivers" accelerated housing development, he said.