Tax cuts dependent on surplus

Finance Minister Bill English says the Government will consider paying off debt more slowly in order to afford tax cuts - despite identifying debt repayment as the top priority in the Budget.

Speaking to reporters after a post-Budget speech this morning, Mr English said income tax cuts would depend on future surpluses.

Three out of four of the Government's top fiscal priorities in yesterday's Budget involved paying down debt, which is forecast to peak next year at 25.6 per cent of GDP.

However, Mr English said the Government could still change the rate of debt repayment to make room for tax relief.

"Yeah, that is one of the choices," he told reporters.

"That would be implied by putting more money in the Super Fund, reducing taxes or spending more than we forecast."

Mr English rejected the Opposition's claim that the Government was cynically manipulating the books to allow tax cuts in an election year.

"I don't think they should be quite so cynical," Mr English said.

"The surpluses out in front aren't really about manipulation. They're just the product of forecasts of the economy.

"There's some uncertainty about them, and there'll be plenty of demand about ways to deal with those surpluses."

Prime Minister John Key hinted yesterday that $14 billion in surpluses over the next four years could allow room for cuts, which he has previously suggested could be worth $3 billion.

Speaking at a post-Budget breakfast in Wellington, Associate Finance Minister Paula Bennett said she worried about New Zealanders moving into upper tax rates.

"We made the conscious decision that we weren't doing tax cuts in this Budget ... but I worry a bit about thresholds ... more and more people are creeping into that top tax rate, and what it means for middle New Zealanders who are working hard and trying to get a bit ahead."

Ms Bennett said yesterday's Budget was "practical".

"We could have whiz-banged you, you know. That's always there and it's always something we talk about, but we saw real need in real areas like upskilling, investment in our regions, in our hospitals."

But "a conversation" was worth having on tax cuts, Ms Bennett told the audience.

HOUSING

Mr English also defended the Government's housing measures in the Budget, which were described by some as underwhelming.

The Government allocated $200 million to get more people into social housing and $100 million to free up land for housing in Auckland.

Labour leader Andrew Little said yesterday the Budget would do nothing to make houses more affordable, and repeated his party's call for a state-run building programme.

Mr English said the Government had the capacity to buy enough to fix a crisis, but the houses simply could not be built because of restrictive planning rules.

The Government plans to issue a directive to councils soon to change their urban limits, which would free up more land for housing.

Ministers have said that if the Auckland Council does not loosen its restrictive planning limits later this year, it will step in.

Mr English reiterated that Auckland's house prices would eventually fall. If the city's planning limits were lifted, the fall in house prices would not be as damaging.

"The opportunity to beat a flattening and probably dropping of house prices is for the Auckland Unitary Plan ... to enable sufficient supply so that the market sees it as a credible shift.

"And then we would see a flattening. But if they produce a plan that has still got tight constraints on supply, we will see prices go up further and then drop more sharply."