Nats reshuffle the fiscal deck for 2017 tax cuts
By Pattrick Smellie
Sept. 8 (BusinessDesk) - The National Party has reshuffled its existing future spending and debt reduction commitments to prioritise "modest" tax cuts, worth perhaps $1 billion, which would be targeted to start from April 2017, ahead of the next general election scheduled after the one occurring this month.
The cuts would target low and middle income earners. While details are scant, Prime Minister John Key appeared to suggest an annual value of perhaps $500 for an average wage and salary earner or $1000 per average household could be in prospect.
"We haven't designed the package but we intend to focus on low and middle income earners," said Key, noting that the average wage had risen from $47,000 to $55,000 a year and was forecast to reach $62,000 annually before 2020, which would take an average wage and salary earner close to the top personal tax rate of 33 percent, which cuts in at $70,001 at present.
Incomes over $48,001 attract 30 percent tax at present.
The cuts would be afforded by lowering taxes instead of either spending more or reducing government debt more quickly, although today's National Party policy announcement commits also to paying down debt in dollar terms by 2017 and reducing net government to gross domestic product (the size of the economy) to 20 percent by 2020.
They would come from the $1.5 billion annual provision announced in the budget and confirmed in the Aug. 19 pre-election fiscal and economic update from the Treasury, as available for spending or debt reduction. Today's announcement effectively earmarks $1 billion of that "headroom" over three years for tax cuts, although they would not occur before 2017, and another $500 million for debt reduction.
Both the tax cuts and debt reductions are subject to fiscal and economic conditions. Reductions of between $700 million and $900 million a year in ACC levies are also in prospect, also subject to the state of ACC's accounts.
The announcements mean no change in the date at which contributions to the New Zealand Superannuation Fund would resume. Labour Party policy is to borrow to resume Super Fund contributions, reasoning that earnings in the fund will more than offset the interest costs of borrowing and preferring to start building the fund sooner rather than later after National stopped contributions following the 2008 global financial crisis and local economic recession.
Finance Minister Bill English had previously appeared rule out tax cuts, as recently as the pre-election fiscal update, which was published less than a week after the publication of the Dirty Politics book, which has derailed National's election campaign, if not its public support levels, according to some recent polls.
Asked at a press conference outlining the changes whether there had been a shift because of concerns about its political support, English replied: "It's what we said. We have consistently said we won't do dollars per week (of tax cuts)" but had $1.5 billion of annual fiscal headroom, of which between $600 million and $700 million would be applied to topping up the health and education budgets.