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Policy Announcement On Tax Relief for Families

Thursday, 18 August 2005

Rt Hon Helen Clark Prime Minister

Policy Announcement On Tax Relief for Families

At Labour Caucus Room,Parliament Buildings Wellington

Thursday, 18 August 2005

This morning I have an important policy announcement to make about tax relief for families.

Earlier today Michael Cullen released the pre election fiscal update which shows a stronger than predicted cash balance over the next two years.

As a government we are proud of this outcome and, as Dr Cullen has said, the stronger fiscal track has created some limited headroom for additional initiatives.

Today I am announcing an additional package of targeted tax relief for modest and middle income families with children.

Over the past two terms in government we have taken a number of important steps to assist low and modest income families with children. Those core policies have included returning to income related rents for state housing; regularly increasing the minimum wage; making primary health care more affordable; and, most recently, the introducing of the multi year Working For Families package.

These policies – together with strong economic and job growth – have already made a real difference to the standards of living of New Zealand's low and modest income families.

Working for Families represented the biggest boost for families on low and modest incomes in over 30 years, and the biggest offensive on child poverty New Zealand has seen for decades.

By April 2007, the Working for Families package is due to be delivering over $1.1 billion a year to New Zealand’s low and modest income families, through a combination of targeted tax relief; help with accommodation costs; and childcare subsidies.

Even so, there are still many families who feel that it’s hard to get ahead.

In many of these families both parents are working. Many have taken the opportunity offered by the growing economy to take on a second full time job, or increase the amount of part time work they are doing.

Through their hard work, their family income may have risen well above the average of $42,000.

Yet while their income is up, the cost of raising a family mean they certainly don’t feel well off. The same applies to middle income, single earner families with children.

Labour believes that the decision to have childen, and raise a family, should not condemn households to years of penny pinching.

People need real choices around raising a family - the choice to have one parent stay at home, the choice to access quality childcare, and the choice to have both parents working if they so wish.

That is why I am announcing today that, from next year, Labour in government will provide additional targeted tax relief to many more families with dependent children.

Our priority with tax relief is to put families with children first.

Labour will achieve this from 1 April next year, by increasing the amount of income a family can earn before they stop getting the maximum Family Support rates, from $27,500 to $35,000, and by reducing the rate at which Family Support abates from thirty per cent to twenty per cent.

Around 60,000 more families will receive tax relief from next year, bringing the total to around 350,000 families.

Under this policy, a family with two children, and an income of $65,000 will receive $64 a week in family tax relief from 1 April next year, rising to $84 by April the following year.

Any two child family will effectively pay no tax at all until their joint income reaches at least $40,000.

This increased investment is in line with Labour's commitment to extend tax relief to more families with children, as the resources to do so become available.

As Michael Cullen indicated after the Working for Families announcement last year, our first priority was to reduce child poverty, but when we could afford to we would move to provide tax relief to families further up the income scale.

The fiscal outlook in the Pre-efu, makes it clear we do now have the room to fund further targeted tax relief for families.

By targeting our tax relief where it's needed most - to those facing the costs of raising children - we are able to deliver substantial gains to all but the top quartile of families and for much less than the cost of an across the board tax cut.

A family with one child earning $51,000 will now get tax relief of an extra $70 a week in targeted tax in 2006. This family’s effective net average tax rate will be only 16 per cent.

To boost this family’s income by the same amount through across the board tax cuts, tax rates would need to reduce by seven cents in the dollar at a cost of around $5.2 billion per annum.

The total cost of the extra family tax relief announced today is $380 million in the next financial year and $426 m in the 2007/08 year.

Labour has promoted tax relief for families because we recognise that there is no more important job in society than raising the next generation of New Zealanders.

By directing the available resources for tax relief at this time to families bearing the costs of raising children rather than spreading them around all income earners, we are putting the money where it is most needed. We can make a real difference to the ability of families to get ahead, and that is the most responsible thing for government to be doing right now.

I’ll now hand over to Michael Cullen, to elaborate on the details of this new initiative.

Thank you.


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