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No Tax-free Income, No GST Cut In Budget

Fuseworks Media
Fuseworks Media

The upcoming budget will deliver some tax cuts for all, but those hoping for a "big bang" will be disappointed, Finance Minister Michael Cullen said today

In notes for a speech to the Institute of Chartered Accountants, Dr Cullen outlined his thinking on tax cuts and ruled out two options -- there will be no tax-free income threshold and no cuts to GST.

Dr Cullen said tax relief had to be "as fair as possible to all workers" and he would outline a three-year programme on May 22.

His initial preference had been for a tax-free income threshold.

"This would have seen, for example, the first $9500 of income not attract income tax," Dr Cullen said.

On the surface this had appeared to be an appealing idea.

"However, it became clear that it would have only a minimal benefit for a very small number of low income earners."

Up to 90 percent of those earning below $18,000 were on temporary low income -- students and youths -- or supported by benefits or superannuation.

Dr Cullen said it would deliver less assistance to low income workers than the $3.7 billion cost in the third year warranted, and he "would be unable to provide meaningful relief for those further up the income scale".

Dr Cullen also rejected calls for removing GST on food and petrol saying it would make the tax system inefficient and any gains would be quickly wiped out.

He also ruled out an across the board cut to GST rates arguing it would give the most assistance to those who had the most to spend, at an estimated cost of $2 billion.

While Dr Cullen said all taxpayers would get some benefit he played down expectations of a large windfall.

"We will not announce huge tax cuts," Dr Cullen said.

"We will not buy into media spin that a big bang budget is vital to electoral success when delivering such a budget would be a recipe for economic failure."

Dr Cullen now appears to have left himself with three options:

* raising the thresholds at which pay people pay higher tax rates;

* cutting the rates themselves; or

* making a lump payment tax return or dividend.

Dr Cullen has yet to reveal any details about timing or size of the cuts, though officials have been assuming $2 billion for planning purposes.

In his speech Dr Cullen stressed again that his cuts package would not result in increasing debt levels or service cuts and would not increase income inequalities.

The recent food and oil prices rises combined with the international credit squeeze, the high dollar, drought and inflation meant New Zealand was now "confronting the most uncertain and potentially challenging global environment we have seen in recent times".

The Government could manage the "harsh edges of economic pressure points", but not compensate for them entirely.

Large tax cuts by previous governments had led to cuts in services and made New Zealand a worse country to live in, he said.

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