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Very disappointing – no tax cuts

The Herald reports:

The May Budget will have no plans for , Prime Minister John Key confirmed yesterday, and he sought to dampen expectations that there would be anything significant in the future.

I’m very disappointed that there will be no tax cuts. Hard working New Zealanders deserve a boost to their after tax income.

In no way do I expect tax cuts for the 2014/15 year as the surplus is so small. But I was hoping that the Government would signal tax cuts in the future years.

When the Government’s accounts move into surplus, Governments have basically three things they can do with the surplus.

  • Increase spending
  • Reduce tax levels
  • Pay off debt

I believe a good Government does all three. If for example your projected surplus is $4 billion you might increase spending by $1 billion, reduce taxes by $1 billion and retain a surplus of $2 billion to pay off debt.

We’ve yet to see the size of any future projected surpluses, but if they are projected to be greater than say $2 to $3 billion (which allows contributions to resume into the NZ Super Fund) then tax cuts are affordable and desirable. And I want to see National commit to them.

Political commentator David Farrar posts at Kiwiblog.

Comments and questions

I think it is sensible. Announcing tax cuts will just make it a political issue with the upcoming election. The greens have been spinning the last round of cuts as for the rich, even though they applied to everyone and the increase in GST costs the rich more (though may impact the poor more as a % of income).

Our debt is also very high, given we are coming out of the GFC and the ChCh earthquake. Hared to explain why we are selling assets when we can afford tax cuts.

I would expect to see tax cuts in the following budget though. I dont think you need a 'mandate' to reduce taxes, only to increase taxes so they dont have to have it as an election policy.

National won't commit to tax cuts if they think they may not deliver - or worse, they're smaller than everyone expects. Chewing gum tax cut anyone?

I note the ACC earner levy rate has decreased from 1 April, so all workers have received a modest tax cut already this year.

If the Government had bought in a Capital Gains Tax 5 years ago, we would now be in surplus.
The spin is that people would not sell etc, etc or there would be a shortage of rental houses which is all nonsense.
Vested interests are stopping a CGT which would bring in enough for a tax cut to the majority of taxpayers.

I read somewhere it would take 10 years for a CGT to raise 4% of government revenue. The impact to the country isn't as great as people think though the impact on the individual transaction can be.

How much more do you want the government to borrow to pay for tax cuts?

Hard working NZers deserve better public services which tax cuts will only destroy.

Maybe Mr Farrar would be better sticking to writing about travel and lifestyle, he's no economist. A CGT would be a significant disincentive to residential property investment. The country needs rental housing stock and investors provide that. The alternative would probably be more state housing, which would be a massive investment funded by debt, offsetting any tax gains.

What nonsense we get from landlords. We are told If landlords got out of the rental business, then all their tenants would be homeless and the Government would have to provide more state housing.
The rental properties would not disappear because landlords quit.
Owner occupiers would then buy the properties for their own use at whatever price the market dictates at the time.

How on Earth can we have Tax cuts when the Country has huge debts!! surely you only give a bit back when the debts are cleared, plus if we get into too much of a surplus, Hariwera will be after it with both hands, to redistribute it to the poor hard done by Maori!!

There is a difference between buying a house to rent it out, and buying it to make a quick profit in selling it. To quote IRD
If one of your reasons for buying a property is to resell it, any profits are likely to be taxable. UNQUOTE
And your friendly IRD rep will decide.
So why do we need a CGT?