Tax cuts coming?

'Adjustments' to tax coming, says Dunne
Tuesday October 17, 2006
By Paula Oliver

Revenue Minister Peter Dunne says personal tax "adjustments" will happen, conceding that the unveiling of a huge surplus has increased pressure for cuts. In a statement which goes further than Finance Minister Michael Cullen was prepared to last week, Mr Dunne said yesterday that the "very large" Government surplus meant two things.

"The business tax reduction proposals I announced with Michael Cullen in the Business Tax Review in July will go ahead from April 2008, and they will be accompanied by personal tax adjustments as well, just as we foreshadowed."

The statement was included in a regular newsletter from the United Future leader.

The likelihood of personal tax cuts in the Budget next year is increasing, but Dr Cullen has so far fallen short of publicly committing himself.

The review of business taxes will probably cut the corporate rate to 30 per cent from 33, and flow through to personal taxes, which could undergo an adjustment of thresholds as well as rates. The changes are expected to be in place in 2008, an election year.

Speaking last week at the announcement of the Government's $11.47 billion annual surplus, Dr Cullen emphasised that the country's massive current account deficit and inflationary pressures needed to be weighed up before personal tax cuts could be made.

He appeared to play down the importance of the surplus in terms of what it meant for future personal tax cuts, emphasising that it was a backward-looking measure and that what happened in the future was more important.

Dr Cullen said he would decide in March next year, when more was known about how revenue was tracking, whether personal tax cuts could be made.

Asked about his newsletter yesterday, Mr Dunne said it had always been his view that the business tax review would result in a lower corporate rate. If that happened there were "inevitable consequences" for personal tax rates.

Asked if he was convinced that personal tax cuts would happen, Mr Dunne said he was "absolutely convinced that the commitments that we gave at the time of the business tax review will be honoured". "But it's a matter of just taking things one step at a time." In a sign of what may be coming, Mr Dunne said he preferred incremental tax changes rather than "big bang" cuts.

He also conceded that the huge Government surplus added to the pressure for personal changes - although like Dr Cullen, he added that it was important to look at what was already coming out of that surplus before deciding what was available.

Tax relief by threshold adjustments
Monday October 30, 2006
By Audrey Young

Between them, Helen Clark and Trevor Mallard say tax relief is on the way but via adjustments to thresholds rather than personal tax cuts.

It is no more than has been foreshadowed in the past two weeks by Labour's support partners New Zealand First and United Future. But Labour pointed to it in separate sections of Labour's conference in Rotorua. The Prime Minister acknowledged that Labour had concentrated on relief for families last election and that next it would be the turn of others.

But she sought to dampen expectations saying "there is rather more to running a country and leading a country than cutting taxes". "We want to do it the Labour way so it doesn't mean slashing public spending, and it doesn't lead to everyone's interest rates rising."

In a remit committee attended by Finance Minister Michael Cullen and his chief associate minister, Trevor Mallard, delegates debated a proposal to index the lifting of tax-rate thresholds with inflation. Mr Mallard moved a successful amendment to reconsider tax thresholds. Dr Cullen described the amendment as "useful".

Adjusting thresholds allows Labour to spread gains more thinly but to a wider number of people, avoiding being seen to give tax cuts to the highest income earners who pay 39c in the dollar on income over $60,000. If the income level where the 33c rate cut in was lifted from $38,000, those on that rate would gain - but so would those on the top rate.

As much as that, eh?

Cullen reveals your tax cut - $10
By VERNON SMALL - The Dominion Post | Wednesday, 20 December 2006

Finance Minister Michael Cullen has finally put a figure on the size of personal tax cuts planned for 2008 - and the self-confessed "Grinch" says it will mean less than $10 a week more for most people. Speaking after the release of Treasury's economic and fiscal update, Dr Cullen said a $1 billion package of business tax cuts was in the pipeline.

However, though he could afford a big personal tax cut, such a move would damage the economy by pushing up interest rates and exacerbating the country's deficit with the rest of the world.

"That does mean that at this point I've got to look a bit like the Grinch, which I'm sure is the headline you are all thinking of anyway, so I thought I would give it to you just to confirm it," Dr Cullen said. ?A cut of $10 a week for all taxpayers would cost much more than $1 billion, on top of the $1 billion earmarked for the Government's priority - business tax cuts.

"If there are consequential changes for personal taxation they will be well inside that figure for the great majority of income earners."

Dr Cullen said households should not expect a big income boost from the next Budget. "The order of size we're talking about does not allow for large tax cuts of, say ... $20, $30 or $40 a week for a majority of income earners. Those are well outside the realm of what would be economically sensible."

Signalling big tax cuts could also spark spending and borrowing ahead of time, worsening inflation and imbalances in the economy.

Dr Cullen agreed with National Party finance spokesman Bill English that tax changes should be incremental. But Mr English said Dr Cullen's plans amounted to "Christmas cake for business, crumbs for the workers".

The Government had missed the best opportunity in a generation to return the benefits of economic growth to wage and salary earners. "The result is that he is sitting on a pile of cash he can't spend or give back in tax cuts. Under his logic, New Zealanders will never see personal tax cuts, no matter how healthy the Government's books."

Mr English said National would cut the business tax rate, but Labour's planned tax credits looked dubious. It would also look at restraining growth in new spending. "Then you would have enough to signal to wage and salary earners that personal tax cuts were possible and with consistent surpluses you'd deliver them."

The Government's accounts painted a much healthier picture than in the May Budget. Economic growth was expected to reach 1.8 per cent in the March 2007 year, a rise from 1 per cent on Budget night.

The improved outlook would allow new spending of $3 billion in 2008, an increase from $2 billion on Budget night. The extra $1 billion would cover the cost of the business tax package.

Labour productivity was improving, and inflation was easing in the short term. The dollar remained stubbornly high, however. Rising house prices had made consumers feel wealthier, leading to increased borrowing and a current account deficit of close to 10 per cent of gross domestic product.
On future spending pressure, Dr Cullen said health was "one, two and three".

Despite earmarking $750 million a year for new spending in the sector, public expectations rose faster than rises in income.