Hon Dr Michael Cullen
Minister of Finance

18 August 2005

Media Statement

Family tax relief package

“A re-elected Labour government will use the stronger than anticipated cash balance in the Pre-Election Economic and Fiscal Update to provide targetted tax relief to middle income families from 1 April,” Finance Minister Michael Cullen says.

“After the Working for Families announcement in the 2004 budget, I indicated that our first priority was to reduce child poverty but that, when we could afford to, we would move to provide tax relief to households further up the income scale.

“Labour believes a fair tax system is one which acknowledges individual family circumstances and the contribution parents make to our society.

“The tax relief we are announcing today would be available through Inland Revenue. Recipients would have the option of having weekly or fortnightly payments or getting a lump sum at the end of the financial year,” Dr Cullen said.

The four year cost is estimated at $1.338 billion and has been made possible by a cumulative $1.583 billion improvement over four years in the forecast cash position.

“Our modelling shows that, even with the Family Tax Relief package, gross debt under Labour will reduce to around 20 per cent of GDP within the next three years. These debt levels are consistent with the government’s fiscal objectives and prudent by international standards.

“The costs will build slowly beginning at $95 million in 2005-06 and rising to $380 million in 2006-07; $425 million in 2007-08 and $438 million in 2008-09. We have deliberately spread the spending over the four year forecast period to reduce the risk of pushing up inflation and forcing the Reserve Bank to raise interest rates.

“Treasury’s advice, submitted with the Prefu, is to be cautious about increasing the fiscal stimulus in the next two years and an increase in mortgage rates would penalise the very households we are anxious to help.

“There are no losers under this policy, only winners. This is because it will not require off-setting cuts in spending elsewhere and will not upset any existing spending commitments,” Dr Cullen said.

ENDS

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