Claire Trevett is the New Zealand Herald’s deputy political editor.

John Key hints he'll fight election on $3 billion package tax cuts

Prime Minister John Key has effectively kicked off National's 2017 election campaign, saying he is confident National could afford up to $3 billion in tax cuts after 2017 and he believes pressure for those tax cuts will grow.

Labour leader Andrew Little said Mr Key's comments about a $3 billion tax cut package for the 2017 campaign had the hallmarks of an election bribe and would come at the cost of more important priorities. "That's a reckless approach."

Finance Minister Bill English shelved any tax cuts in this Budget and instead put $1.4 billion toward repaying debt. However he did not rule moving on cuts in 2017. Mr Key said options included tax cats in the 2017 Budget, campaigning on a platform of tax cuts in 2017, or taking tax cuts off the table: "If you take the latter, that certainly wouldn't be where our thinking is at the moment."

"We'd like to deliver a tax cut to the electorate. The question is the timing of that and the size of it."

Mr Key said to deliver reasonable cuts would cost $2-3 billion. The Government could only have afforded a more modest $1 billion this year, which would have given people "anywhere between next to nothing and maybe about $7 a week".

"I think on balance [New Zealanders] would prefer we spent that money on health and education.

"Having said all that I think the pressure for tax cuts will grow over time. I think New Zealanders will say that as the average wage is rising and getting nearer the top rate that it's unacceptable you are on the average wage and paying the top personal rate. So there is going to have to be movement."

The last tax cuts were in 2010, when National increased GST to pay for it. Mr Key said National would take into account the fiscal situation and debt repayment before making a final decision. It also had to take into account the $1.5 billion extra funding needed for public services.

Mr Little said funding public services and re-starting contributions into the Superannuation Fund should be prioritised over further tax cuts. "The pressures are growing very heavily on the Government. Trying to play catch up as well as promising $3 billion of catch up simply won't add up."

Those contributions were put on hold by National in 2008 and Mr English has previously said he would consider re-starting contributions once the books were back in surplus. That target was reached last year and Mr English has now turned his attention to repaying debt.

Last week Finance Minister Bill English ruled out offering tax cuts in this year's Budget and said it was not currently in the plan for the 2017 Budget either, although that could alter.

Speaking to Mike Hosking on Newstalk ZB this morning, Mr Key said tax cuts had been ruled out in the short term because it was a choice of spending $1 billion on tax cuts "to deliver very small amounts" or spending that money on healthcare and other areas.

However, he signalled National was working on a more substantial package of cuts for 2017. "We are not ruling that out for 2017 or campaigning on it for a fourth term in 2017, but having a bigger one, to be blunt, than $1 billion." Asked how much was needed to deliver meaningful tax cuts, he said: "$3 billion, I reckon."

While there was not enough in the Government books for that at present, he expected that to change as the surplus built up.

He said it was possible to put that to the voters without it being dismissed as pork barrel, saying at some point tax thresholds had to change to take account of increasing wages.

Listen: Prime Minister John Key speaks to Newstalk ZB's Mike Hosking.

He said the package National had been looking at but discarded for Budget 2016 was about $1 billion and would have delivered less than $8 a week to many households.

Labour's finance spokesman Grant Robertson says Prime Minister John Key is irresponsible to raise the prospect of a $3 billion package of tax cuts after 2017.

Mr Robertson said Mr Key was "plucking numbers out of thin air."

"The Prime Minister is being reckless and irresponsible. When people are being forced to live in cars and garages, when older New Zealanders are living in pain because they cannot get operations, we are a long way from being able to afford these kinds of election bribes."

He said it would put the books back into deficit based on Treasury's forecast of a $1 billion surplus in 2018.

Act leader David Seymour said waiting until 2018 was leaving it too long.

"Even a $3 billion tax cut in 2018 would barely cancel out the $2.1 billion cost of bracket creep since the last round of tax reforms. It would be more of a 'tax reset' than a tax cut.

He said Mr Key was losing credibility on tax cuts by trying to have it both ways and signalling tax cuts for the right while also trying to please the left by failing to deliver them sooner.

"It strains credibility that the Government is prepared to allow eight years of bracket creep before cutting tax. A more credible approach would be to cut tax now, with a promise to adjust tax brackets with inflation rates."

- NZ Herald

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