National’s tax cuts

John Key and Bill English have announced the parameters for tax cuts:

Allow around $1 billion a year for new spending, including between $600 million and $700 million a year more for health and education. This total new spending is consistent with the level of new spending in our last two Budgets and it’s well below the $2 billion to $3 billion spending increases under the last Labour government, which had little to show for them.

Reserve the remaining $500 million per Budget for modest tax reductions and further debt repayment, as economic and fiscal conditions permit. This portion of the allowance will be moved between Budgets and accumulated as necessary. Therefore, by the third year there will be around $1.5 billion available for tax cuts and debt repayment.

So if the economy grows as projected, then tax cuts of around $1.5 billion a year will be possible by year 3. The PM confirmed they will be targeted at low to middle income earners.

“It means that over the next four years, National will spend around $10 billion more in total, and most of that on health and education,” Mr English says.

if you are in surplus, you can increase spending and reduce taxes.

This is absolutely the right thing to do, and a normal thing to do. As the books move into surplus, a moderate Government will “spend” the surplus on a mixture of extra spending and tax reductions (plus of course maintaining a large enough surplus so that debt reduces). I expect all parties to do a mixture of extra spending and tax cuts. Sure left wing parties might do 80% spending and 20% tax cuts and right wing parties say 50% spending and 50% tax cuts. But Labour not only won’t give tax cuts, David Cunliffe has said their Capital gains Tax will see families and businesses eventually paying an extra $4 to $5 billion a year in taxes – and the Greens want to have the top tax rate of 40% – the highest we have had since Muldoon!

So what sort of tax cuts could you do in April 2017 with $1.5 billion?

• The bottom rate could drop from 10.5% to 6% on your first $14,000 of income
• The second bottom rate could drop from 17.5% to 14.5% on your income from $14,000 to $48,000.

$48,000 is close to the average wage. A 3% reduction in the second bottom rate would be almost $1,000 a year more cash in the hand for a worker.

A clear choice in this election – parties that would reduce taxes vs parties that want to tax New Zealanders more.