John Key and Bill English say pre-election tax cut option still open despite Kaikoura rebuild costs; Key sees NZ$8-9 bln surpluses by 2019/20 so Kaikoura rebuild costs of NZ$2 bln 'not material'; HYEFU may be delayed

John Key and Bill English say pre-election tax cut option still open despite Kaikoura rebuild costs; Key sees NZ$8-9 bln surpluses by 2019/20 so Kaikoura rebuild costs of NZ$2 bln 'not material'; HYEFU may be delayed

By Bernard Hickey

Prime Minister John Key and Finance Minister Bill English both say the option of tax cuts to be announced before the 2017 election remains on the table despite the extra cost of the Kaikoura rebuild.

Key told reporters in Lima the potential costs of rebuilding the road and rail connections to Kaikoura of NZ$2-3 billion were not material, given the Budget was forecast to be in surplus by NZ$8-9 billion by 2019/20.

He also talked for the first time about the potential for a package of spending on families in addition to, or instead of, tax cuts. Key and English suggested changes to policies that could deliver more disposable income to poorer families, other than through tax cuts. That could include changes to Working For Families payments or Accommodation Supplements.

The surplus number for 2019/20 cited by Key is different to the NZ$6.7 billion forecast by Treasury in May, suggesting he may have seen some early forecasts ahead of the Half Yearly Economic and Fiscal Update (HYEFU). Key told reporters the HYEFU may need to be delayed a week from December 8 to December 15 to include an update on the earthquake rebuild.

A Treasury spokesman said options for dates other than the scheduled December 8 date were being considered, but no decisions had been made.

"We're trying to plan over a three to five-year horizons, and we just don't have that feel for that yet, but I don't think the earthquakes as they currently stand will, over the medium term, stop us from wanting to do other things," Key said when asked about tax cuts.

"It's a factor (the quakes) that could have some impact on the decisions we make and we can't say that it wouldn't," he said.

He referred for the first time to a possible "tax or family package."

"We've identified from our own perspective if there was more money, where would be the kinds of areas we want to go, not what is the make up say, for instance, of a tax or family package, what is the make up of other expenditure we want," he said.

"But nor would it completely render us not to be a position to consider a range of things we would want to campaign on or carry out if we got a fourth term."

Key said the Government could lift incomes in a way outside of the usual wage growth.

"Tax is one vehicle for doing that, it's not always the most effective vehicle for doing that for particularly low income families," he said, adding that tax cuts would be effective for those on higher incomes, but was not as effective for those on lower incomes, and tax cuts that reached those on lower incomes were also more expensive.

"Over the fullness of time we'll have to see whether we've got much capacity to move," he said.

"Making sure they can keep a little more of what they earn or get a little bit more back through a variety of mechanisms is always something we can consider. It could be a mix, yes."

Key pointed to the Government's 2010 "tax switch" that included changes to Working for Families and a low Income rebate.

"In the end it's about equity for New Zealanders and about having a rise in their standard of living, and there's a number of ways you could deliver that."

ANZ Chief Economist Cameron Bagrie questioned whether the Government would now go ahead with tax cuts in a research note last week.

"Certainly the mooted tax cuts for 2017 look unlikely to be delivered and the Government will now have less headroom for a pre-election lolly scramble in the 2017 Budget," Bagrie said

English still confident

English told RNZ in an interview that the tax cuts were still under consideration and the earthquakes had not knocked the economy off its track of stronger-than-expected growth, which was boosting tax revenues and expected surpluses.

"They're still on the table. We've got a lot going on with the Government's finances. There's an economy that's growing a bit more strongly than we expected," he said, referring to last week's Fonterra' forecast upgrade.

"With the economy growing the way it is, the surpluses were rising, so if they come down a bit they'll still be there and will still be rising," he said.

English also talked about how the Government was looking at ways to deliver help on lower to middle income families, which suggests the Government may be looking at ways other than tax cuts to deliver higher incomes, given simple tax cuts deliver the most to those on the highest incomes.

"The pressures on low and middle income income households -- the rise of housing costs because of the cost of housing, and also the rise in rents has put a bit of a squeeze on those households," English said when asked why the Government was considering tax cuts.

"They would prefer relief if that's possible. We've yet to see whether that's possible," he said.

Accommodation Supplement increase?

There have been calls for increases in Accommodation Supplements in recent months, given they have not been adjusted in over a decade. Social Housing Minister Paula Bennett and Key said in early October they were open to reconsidering the Supplements levels.

Asked if the quakes would hit the economy, English said: "In the context of the broader economy, it's not going to knock it off its path, which is fairly robust growing economy. Tourism is growing well. Construction and infrastructure. Which are going to create some real pressures with the earthquake rebuild on the construction sector."

"The outlook is pretty positive. This won't knock us off the track. We've got choices that other countries don't have. That's positive."

'Talk of tax cuts just plain crazy'

Labour Leader Andrew Little said the talk about tax cuts was "just plain crazy" when New Zealand still had NZ$63 billion of debt and Superannuatiokn payments were rising by NZ$1 billion a year John Key’s talk of tax cuts when the Government has $63 billion of debt, superannuation costs are rising by $1 billion a year.

“Kaikoura’s rebuild alone will cost billions and put pressure on the Government’s books so for Key to now say there’s still room for tax cuts just shows just how out of touch he is," Little said.

“New Zealand weathered the GFC and Canterbury earthquakes because the previous Labour-led Government resisted National’s calls for tax cuts, paid off debt and put the Government’s finances on a sound footing so it could withstand shocks," he said.

“Now is the time to be talking about staffing Geonet 24/7 and a national tsunami warning system and not talking about cutting taxes. The Government is failing to show how it can help Kiwi’s into their first home and failing to provide hope to the many workers on low wages who are missing out on the gains of economic growth."

(Updated with reaction from Andrew Little)

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Increasing the accommodation supplement will only increase housing inflation. The better thing to do is to abolish the accommodation supplement and increase the basic welfare payments - let people decide how they will spend the money. Wages have to increase and the only way for this to happen is for companies to pay more. Perhaps increase the minimum wage, perhaps increase civil servants salary, perhaps increase the dole.

Agree. Also get rid of the burdensome GST. $19b tax swap money go round. Incentivise investment away from property speculation .... capitalism only knows one rule, tax incentives, positive or negative.

Why is GST burdensome?
Can you think of anything more equitable?

"Capitalism only knows one rule, tax incentives, positive or negative"
Wrong. Taxation has no place in pure capitalism.

Are u saying taxation has no place in Capitalism...???
If so.... I'd strongly suggest that you are wrong..

I'm saying inequitable taxation has no basis in pure capitalism.
Everything in a capitalist ideal would rest on it's own laurels, not those artificially imposed.

I agree if there is going to be tax cuts lets start by reducing GST. It started at 10% now 15%. Lets get the economy moving up wards. Not holding it up. with cross subsidies

Perhaps make the landlord apply for the accommodation supplement

You know accommodation supplement is only about 20% of the actual cost of the weekly rent. You don't get paid the full amount of the rent. Never has been.

Depends. The tenant gets it based on rent, then the 'boarders' (in same said house) can get it based on their board - paid to the tenants.

Supplement. Of course I know what a supplement is and let the landlord apply for that amount, 20% is a fair chunk

It depends on regions and the maximum is no more than $125/wk (area dependent) if you have children whereas, for one person its $98/wk(with conditions) and if you have boarders its less. So your assumptions of a goldmine are wrong unless you're a landlord who'll subsidise tenants by 80% your argument(s) are a nonsense....

So that upto $6,500/year going to a landlord from the tax take because the government refuses to put policies in place to keep housing affordable. That's the equivalent of not taxing someone earning $40,000/year.

Don't care. If landlords need more to cover the extra they paid for properties or if they want to increase the rent on just a capital gain, but they can't get anyone to pay what's needed to do that, let them apply for the welfare, it's them that's benefiting from it in the long run, it's them who needs to apply. In my view.

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Do any of these people actually believe what they say?
'Cost is only going to be $2-3b'
'Surplus predicted to be $8-9b in 2019'
'Tax cuts'

I certainly see no evidence of substance to back these claims.

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A pre-election bribe..."the option of tax cuts to be announced before the 2017 election". Fool's gold.

So who, if anyone is at fault.
The folk that offer the bribe, or
The folk that accept the bribe.

Both Henry.

So many people are in poverty thanks to the governments unspoken policy of driving up house prices. The reputation of all NZers has been put at risk by the Panama papers finding, shockingly, NZ has become a place foreigners can hide their ill gotten money here no questions asked. The government repeatedly hides the foreign takeover of NZ houses and land by fudging the figures in LINZ surveys and then lies about it.

I could go on all day. There are a lot of big problems this govt has created and it wants to buy votes with tax cuts for the next election. Its pennies for your soul.

They talked about tax cuts before the last election. Still waiting. ... seems like we are always on the cusp of something but never get there with this govt. You think the public would be tiring of all this tax cut talk by now.

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How about some of that excess going to those who are going blind waiting for simple eye ops, oh and while at that, maybe start funding health system properly with a bit of extra attention on mental health, what about Lifeline and Youthline, currently my 11 year old grand daughter is baking chocolate cakes and trading them for a koha to raise funds for Youthline. Good on her, all power to her, but also think King Canute and the tide.
How about the extra police we need, how about education being lined up for some serious cutbacks, how about, how about, how about.
Whatever excess there is can probably be spent a dozen times over and we'd barely notice but to give anyone who needs it anything significant would make a very big hole.
I see it advantaging only the usual suspects.
I say no.

How about, how about, how about, people considering taking risks by investing money, time and capital in businesses that will create employment or working longer hours on overtime and second jobs but then looking at the amount they will pay in tax and asking themselves ... does my net return really make it worthwhile ?

f you net out all the assets and liabilities in an economy, you’ll find that the nation’s accumulated stock of real investment is the only thing that remains. That’s the central driver of a nation’s productivity, and the true basis for a nation’s wealth. Broadly defined, it includes a nation’s accumulated stock of real private investment (e.g. housing, capital goods, factories), real public investment (e.g. infrastructure), intangible intellectual capital (e.g. education, inventions, organizational knowledge and systems), and its endowment of basic resources such as land, energy, and water. Encourage, incentivize, and protect all of those, and you’ll find an economy that delivers prosperity. Fail to encourage productive investment at every level, and you’ll find an economy in long-term decline. The primary source of failure in the U.S. economy over the past 15 years has been a policy environment aimed at encouraging consumption over productive investment. Those policies have been dominated by the Federal Reserve’s quest to punish saving, fuel debt-financed consumption, and produce an illusory “wealth effect” from financial speculation. If you’re looking for the root of U.S. economic stagnation, there’s your trouble.
https://www.hussmanfunds.com/wmc/wmc161114.htm

Human capital, people, are the main driver of productivity. Just look at China. Under the Communists planned economy it was poor. When they unleashed the people to produce what they wanted, growth exploded. Investment is important but people are more important

No - the leverage of cheap energy is what is important. In Chinas case, they leveraged their cheap coal.
Have a look at slide #34 in this presentation.
https://gailtheactuary.files.wordpress.com/2016/11/the-energy-problem-be...

Andrewj - Cheap energy delivers prosperity - everything else is just an energy sink. The US decline coincides with their Oil production peaking around early 70s and a debt fuelled binge since, Their main export since then has been US$$.

Funny how they came off the gold standard around that time. With the Hubbert peak there is a flattening off before the peak also, so the US troubles started further back once the rate of growth in their oil peaked.

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Rather than more tax cut election bribes, I'd like to see money invested back into education, housing, healthcare please.

12
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and stop selling the countries core assets, businesses, land, minerals, raw materials and housing to foreign interests. And stop selling our greatest asset, our low population.

Why do we need to do this? It is forced on us as we spend more as a country than we earn and therefore have to borrow or sell assets to pay the difference. As a country this shows up as the current account deficit, this shows just how much more we spend than we earn.
http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-current-account

It is simple stuff dressed in fancy language so civil servants get paid more.

How do we solve this? By encouraging saving and discouraging borrowing. If we can come up with a few simple easy things to change then we can balance the current account, ie spend less than we earn. We will not then need to keep selling the country itself. So reducing the tax deductibility of interest would help, as would an inflation adjustment on interest received. There will be lots of small changes that are not disruptive if we look for them in the right places.

Roger - what is the point of balancing the current account if every other country is not bothered. ie its a globally connected financial system now, everyone relies on everyone else to keep the Ponzi & consumption rolling. No point being the one holding up the worthless paper at the end ... You might as well trade digital pixels for REAL RESOURCES when thats what every one else is busy doing - thas the guts of Trumps plan - annex as much of the worlds resources for the US with as much debt fuelled consumption as possible. Its not pretty, but its also (in a selfish sense) the only strategy left....In contrast to Hiliary's military force to get all the resources.
Will it end well? No. But its too late for any other outcome; too many people, too many debt claims, not enough resources.

At the moment we are trading our country for trinkets. As you say, we selling our country for bits of green paper. The reason to balance the current account is to stop being played for fools.

Yeah i see your point - because we have a shortfall we make up the difference by selling real resources.. But thats the power of the petrodollar. If you need energy (which underlies all consumption), you need US$ Oil.

I don't think it's that bleak in New Zealand's case. I think our problems are largely of our own making and largely solvable. For instance we seem to have solved the population problem that many countries still have, that breeding continues until starvation results. Instead we are importing more people... (duh).

I would like to see tax cuts to put the money back into peoples own hands and pay for the health care and education the way they want to not the way the politicians want too.

Helicopter money

Tax cuts don't work for the bulk of low-income earners who pay little tax

Helicopter money paid out in lumps once a year helps the most.
Small weekly reductions in tax showing up in the take-home pay get lost too quickly

I rather like the fairness of putting $1000 in every citizens' bank account each year. Much better than the current system of competitively devalueing the currency via greater and greater indebtedness at lower and lower interest rates. The problem seems to be in fashioning a suitable institutional control mechanism so it doesn't get captured and used by the wrong people. They may have got a bad name because Germany and Japan used variants of these techniques very successfully in the 1930s I think....

The guts of it is the Pie is shrinking (its definitely not growing). Net energy available per person is on the slide ... So it all comes down to how to share whats left of a shrinking surplus of sorts while things hold together. Helicopter money keeps the masses spending, so commodity demand holds, but its only ever going to be a temporary measure - it will create other distortions which inevitably cant be held together.
You are argue we already have helicopter money in the form of (eg) student loans ... (over) educating the masses for jobs which arent going to be there ..

Agree totally. Except giving low income earners an income tax cut gives them $20 odd more to spend at no extra cost to government. That extra will invariably be spent on a GST related item which will actually net the gov more tax? Savers on the other hand. They're a pain in the butt and need to be taxed at income level

I think meaningful tax cuts are a given,john key wants to lead a 4th term government and without the tax cuts he would have to deal with Winston.

The fact is that the NZ economy is doing very well by the sounds of it

A rather puerile debate, Comrade Bernard. Many NZ "families" (around half the workforce) pay no tax now in reality, once all benefits and credits accounted for.

Exactly

Half the workforce plus all the unemployed get no benefit at all

The main beneficiaries are those on the top of the heap already

tax cut for the rich, assistance for the poor. Kill the middle class, they think too much!!!!