Herald commentators react to National's cuts

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The Herald's top commentators take a look at the National Party's tax policy.

Political correspondent John Armstrong:

The winners from National's tax cut package are easy to identify: working singles and couples without children.

The comparative losers are families on or below the average wage. They may look askance at John Key. They may well feel they have been hoodwinked.

Prior to today's announcement, Key flagged a tax cut of around $50 a week for someone on the average wage. With National using $47,324 as its figure for the average wage, National's tax cut actually amounts to $46.54 once it has been completely phased in. But only for those not getting Working for Families entitlements, national superannuation or a benefit.

For those getting income assistance under Working for Families, the tax cut is $41.54 - still nearly $10 more than the equivalent sum in Labour's package, but nearly $9 less than they would have thought they were getting.

For those families earning less the than the average wage, the extra amount National is giving over Labour drops rapidly to the point where a family on $40,000 is actually better off with Labour's cuts.

This will be a rude shock for those families. When Key said National would be retaining Labour's additions to Working for Families, they would not have expected that would result in them being treated differently from other taxpayers once it came to National's cuts.

In political terms, National has effectively ditched that segment of the vote - or will have found it has done so once Labour starts reminding voters of its message about trusting National.

Labour will also seize on National's planned changes to Kiwisaver. National will argue the scheme has not been compromised by its abolition of the employer tax credit, which was only intended to be a transitional measure. But Labour will respond that it is a sign that National is not committed to the savings scheme. That once you start tampering with the scheme, you are on a slippery slope.

Labour will also insist that the scheme will be weakened by National's decision to allow employers to pay higher wages to staff who are not in the scheme.

Overall, the tax package wins plaudits for being fiscally responsible. It won't win big in electoral terms because of its generosity - someone on $80,000 only gets $6 a week more than they would from Labour's package.

As for National's plan for rescuing the (sinking) economy, there was nothing new today. We're still waiting.

Political editor Audrey Young:

National's tax package does what it promised in some respects, doesn't meet promises in other respects and offers some complete surprises.

One of the surprises was the promise of an independent earner rebate.

It offers some welcome relief to employees earning between $24,00 and $50,000 who have missed out for years and years in the social policy programmes favoured by Labour (excluding pensioners, beneficiaries and anyone receiving Working for Families).

Essentially it is for low-income singles and couples without children.

It is a section of the community that has almost been marginalised in the contemporary political obsession with "families."

According to Bill English, at a press conference on the North Shore, between $550,000 and $600,000 people will be eligible for the rebate - $10 in the first year and $15 in the next.

National has met its promise in identifying how its tax cuts would be funded without borrowing.

The should silence Labour's mantra that National is borrowing for tax cuts.

But the package will fuel other criticisms. The expectation that average income earners would get $50 is not met.

Yes it is met more or less for an average earner who also gets an independent earner rebate - less actually - $46.54 for someone on $48,000 after three years.

But not those who don't get an independent earner rebate, it's well shy of $50 - $41.54 after three years.

But the biggest concern will be National's commitment to reverse what many see as protections in the KiwiSaver scheme that Labour recently passed.

They stopped a loophole allowing employers to effectively deny KiwiSaver employees pay increases on the basis that they have done deals on KiwiSaver contributions.

National sees this through different glasses, giving employers freedom to give non-KiwiSaver employees pay rises equivalent to their contribution increases to KiwiSaver employees.

Excepting one is pay rise for today, another is one you can cash in only at 65.

It is a recipe for exploitation and unfairness.

Economics editor Brian Fallow:

If you were looking for a transformative policy shift, this is not it.

At first glance the big transfer of money in National's tax package is from KiwiSaver accounts into people's pockets.

In the short term that gives them more to spend at a time when private consumption is flatlining.

But you can't have your cake and eat it.

Our dismal household and national savings rates and the associated build-up of debt show we have been over-fond of eating cake.

"Have another slice, the bakers could do with the business," is the message of this plan.

The success of KiwiSaver, as measured by its uptake, has been an encouraging sign of a long-overdue behaviour shift from borrowing and spending to saving and investing.

And that shift is essential if we are to see the "capital deepening", or increase in capital employed per worker, that is key to lifting productivity and incomes in the longer term.

The other thing that would encourage more capital investment, especially among the vast mass of small and medium businesses which generate most of the employment and which are often unincorporated, would be a drop in the top personal tax rate.

National says its medium term goal is a top rate of 33c in the dollar which kicks in at $50,000.

It is not clear what "medium term" means, but the plan released today only nibbles at the top rate. It would still be 37c in the dollar from April 2011, with a $70,000 threshold.

Other elements of the plan are also disappointing from the standpoint of lifting our long-term growth rate - less of an increase in infrastructure spending, and the scrapping of the research and development tax credit.

At least it does not make the rather grim fiscal outlook released by the Treasury any worse. But it is only marginally better.

Either way, deficits persist until 2017, by which time the gross dent to GDP ratio will be 30 per cent, compared with 17 per cent now.

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