Key gives tax cuts, reduces KiwiSaver

By Edward Gay, NZPA

National has unveiled an economic and tax package that will give an extra $18 a week above Labour's cuts for an average worker but has to reduce expenditure elsewhere to pay for it.

The package has provided winners and losers in its mix.

Party leader John Key revealed a slightly pared down tax cut package that puts more in people's pocket's next April, but offers less than planned.

The cuts are funded by cutting planned increases to Government subsidies for those in KiwiSaver and axing research and development tax credits for businesses.

There is also a reduction in the amount to be spent on infrastructure in the next three years, so that borrowing is reduced.

Mr Key said a worker on the average wage of about $48,000 would be better off by an additional $18 a week above Labour's tax cuts when National's first tranche of cuts kicked in on April 1 next year, if the party is elected.

Incorporating Labour's October 1 cuts, the same worker would be $47 better off by April 1, 2011.

The package outlined by Mr Key included movements in both the thresholds that different rates start at, and drops in the actual rates themselves.

It also included a tax rebate of $10 a week for taxpayers earning between $24,000 and $50,000 who do not receive anything from Working for Families.

It is estimated 600,000 people would qualify for the rebate.

Mr Key said National had scaled back its tax cuts plan by $2 billion in the face of a decade of forecast budget deficits.

Lower income earners who get Working for Families, lower income KiwiSavers and companies receiving research and development tax credits are the main losers under the package.
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Those receiving the Government's Working for Families package who earn under $44,000 a year will get slightly less under National than under Labour.

Someone earning $40,000 a year will get $5 a week less by April 1, 2011, a person on $30,000 will get $7 a week less and someone on $20,000 will get $9 a week less.

That is because National has introduced a new "independent earners rebate" for those earning between $24,000 and $50,000 who do not receive Working for Families.

Lower income earners who belong to KiwiSaver will also potentially miss out on some subsidies under National's plan.

National has lowered minimum contributions from 4 per cent to 2 per cent. That means people will have to put less in, but the matching government subsidy will also be capped at 2 per cent.

Someone earning $52,000 a year will still be able to collect the full subsidy of $1040 a year, but anyone earning less than that will not.

Someone earning the minimum wage of $25,000 a year would only get a government contribution of $500 a year.

In addition compulsory employer contributions have been pared back from 4 per cent to 2 per cent.

Companies currently claiming the Government's 15 per cent tax credit on research and development will also lose out, with National planning to scrap the tax credits altogether.

Finance Minister Michael Cullen said National's economic plan has "savaged" KiwiSaver while encouraging people to spend.

"Basically it says economic growth is not about savings, and investment and innovation at all, it's simply about encouraging people to spend," Dr Cullen said.

He said people will lose $40 a week in KiwiSaver contributions for a $14 tax cut above Labour's in the long run.

"Many people will pay more tax under this package then they do under Labour's package. Anybody earning between $14,000 and $24,000 a year will pay more under this package then under Labour's package."

He said those with a home, no children and high earners will do well under National.

Co-leader Jeanette Fitzsimons said funding tax cuts from the science research budget is tantamount to mortgaging the future.

"A strong sustainable economy will be based on good science and research. They are currently underfunded. National wants to strip them even further," Ms Fitzsimons said.

NZ First leader Winston Peters said: "Nothing in the plan announced today should give anyone confidence National can deliver the positive policies and clear strategy to see our country through the rough road ahead.

"Instead, they are proposing a reduction in workers' pay conditions, a cut to the state sector, and a reduction in the amount of investment in New Zealand's businesses. Such policies have led to lower wages, lower investment, and lower growth in the past and will do so again."

KiwiSaver changes

National announced three major changes to KiwiSaver which would help pay for its tax cutting programme if it forms the next government.

Party leader John Key unveiled the long awaited tax policy in a speech in Albany, Auckland today, in which he pledged workers on the average wage would be $47 a week better off by 2011.

Click here for the full speech

Finance spokesman Bill English also announced significant changes to the KiwiSaver scheme.

"The expanded KiwiSaver scheme Michael Cullen announced in 2007 is not suited to the difficult economic conditions New Zealanders are facing," Mr Key said.

"It sets the hurdle for entry to KiwiSaver too high in tougher times."

At a media conference after his speech, Mr Key said while people who were on the 4 per cent contribution will not be as well off, they could always put their tax credit into their KiwiSaver account.

Mr Key said that the National scheme was endurable and "do-able" with a two plus two employee/employer contribution scheme.

He dismissed claims that the planned tax cut in five months time was at the expense of saving for the future.

Mr Key said if economic conditions allowed, KiwiSaver could be increased to a three plus three system and workers would have higher wages under National's tax cuts.

'Self-funding' policy

National said its KiwiSaver changes, plus an end to the research and development tax credit and "replacing Labour's proposed tax cuts" would make its policy "self-funding".

It said the KiwiSaver changes would save $3 billion between 2008/2009 and 2011/2012 and there would be no need for additional borrowing or cuts to public services.

"No matter what smears my opponents may try to spread, you can be confident. This is a prudent and responsible tax package," John Key said.

National's full tax cut would not be reached until April 2011, and would include the tax cuts Labour introduced last week.

Mr Key said the bulk of the cut would come on April 1 2009, meaning a worker on the average wage of $48,000 would be better off by an additional $18 a week above Labour's cuts from that date.

From April 1 2009

* Tax rate of 12.5 per cent for income up to $14,000
* 21 per cent for income between 14 and 48,000
* 33 per cent for income between 48 and 70,000
* 38 per cent for income over $70,000

The amount workers received would change on April 1 2010 when tax threshold changes.

The changes would see those earning $50,000 and lower taxed at 33 per cent rate while those in the top income bracket will be taxed at 37 per cent.

In 2011 the 21 percent rate will be lowered to 20 percent.

"That means that under National's tax plans around 80 per cent of taxpayers will be paying no more than 20 cents in tax for every additional dollar that they earn," Mr Key said.

He said if a National government was elected one of its first steps would be legislating for the tax package.

"We will pass these tax changes into law before Christmas," Mr Key said.

"Our medium-term goal is to deliver a three-tier personal tax system with the highest rate of no more than 33 per cent on income above $50,000. This is what we will work towards as future economic conditions allow," he said.

Mr Key earlier said tax cuts under a National government would be $50 a week for the average worker.

But since the Government books were opened on Monday, the party has had to re-work its figures.

The Treasury's figures showed cash deficits forecast to reach $7 billion and budget deficits for the next 10 years.

"The Treasury forecasts released earlier this week paint a very bleak picture of the future, for a long way ahead, if we remain on our current course, if we keep our current policies, if we keep our current government," Mr Key said.

"My colleagues and I are offering a very different way forward. It involves some clear choices. It requires us as a nation to be prepared to back ourselves," he said.

Click here for National's Fiscal policy

Independent Earner Rebate

Mr Key said that National would lock in superannuation at no less than 66 per cent of the average wage and that tax cuts would push payments higher.

By 2013 under National, superannuitant couples' would get $554 as opposed to $536 under Labour.

Mr Key said National would also create an "Independent Earner Rebate" for those not already receiving Working for Family contributions.

The package would cover those earning between $24,000 and $50,000 and would give workers $10 a week in the first year, eventually rising to $15 a week.

John Key also said the RMA would be "streamlined" and that National would "amend" the Emissions Trading Scheme but he did not give details of how this would be done.

After his speech, Mr Key told reporters that Working For Families had taken up a lot of resources but many had missed out.

He said under National's plan, for example, a young couple saving for a house would benefit from the rebate scheme.

Mr Key said 900,000 people would receive the rebate that were not now in the Working For Families scheme.

He said people under National would be better off, not just in terms of tax cuts.

"They're going to have their job. These are serious conditions. We hear in the PREFU on Monday that unemployment is going to rise above 5 percent, we've got very difficult economic conditions," Mr Key said.

During his speech, Mr Key had said National's economic plan included a focus on frontline government services and "stopping the massive rise in head office bureaucracy that Labour has encouraged".

He received applause from the crowd, the majority middle aged and from Pakeha New Zealand, when he said Kiwis were scrutinising every Kiwi dollar.

"It's time to instil the same kind of discipline across the public service," Mr Key said.

He said National would also invest in infrastructure including roads.

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