Budget 2016: Big tax cuts may come, hints John Key

The Government's "boring" Budget could pave the way for National to take big tax cuts to next year's election, Prime Minister John Key says. Photo / Mark Mitchell

Needs of the growing population win in this Budget but lower tax is likely to come from growing surpluses.

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The Government's "boring" Budget could pave the way for National to take big tax cuts to next year's election, Prime Minister John Key says.

Reducing income taxes was included in the Government's top four fiscal priorities in its eighth Budget, which focused heavily on meeting the health, education and social costs of a growing population.

Speaking after the Budget was released, Mr Key gave a strong hint that successive, growing surpluses would give the Government room to consider $3 billion of tax cuts next year.

"We'll wait and see in terms ... of what we think will be in Budget 2017, but there's $14 billion of predicted surpluses in that period between 2017 and 2020."

As signalled, the Budget's biggest winners were hospitals, schools and social services. It contained few surprises or big-ticket items, prompting some to call it "boring".

There was no rescue package for first-home buyers but there was a modest response to the dual issues of supply and state house waiting lists in Auckland. Up to 750 more people will get social housing places, and $100 million will go towards freeing up surplus land for development.

Based on past funding, that could produce up to 2000 homes in Auckland.

The biggest housing measure is still to come - a Government directive expected in the next two weeks which will press councils to scrap restrictive rules about where and how high houses can be built. "There will be no room for debate," Mr Key said.

Finance Minister Bill English described it as a "Budget for a growing New Zealand", with nearly $2 billion in new spending made possible because the Government had "retained tight fiscal discipline and demanded better results from public services".

New health initiatives included a national bowel screening programme, beginning next year in two DHBs and expanding over time to 700,000 screenings every two years.

There were few controversial moves, though smokers will feel the sting of tax hikes which will raise the price of a $20 packet of cigarettes to $30 in 2020. Parliament went into urgency last night to pass the tobacco excise changes, the first of which will kick in on January 1.

Smokers might "feel a bit targeted," Mr English said, but the tax would send a "clear and direct message".

Labour leader Andrew Little said that, after eight years, the Government had no long-term strategy and instead came up with a "scratched out, patchwork" plan.

His speech attacked a freeze on schools' operational spending - which he said would lead to higher school donations - and the increase in health spending that he maintained was still short of the amount needed for current health services to be maintained.

But a key line of attack was the housing situation. The new measures did nothing for home affordability, the Labour leader said.

Green Party co-leader James Shaw said the Budget was "boring but also disappointing". The Government had for eight years put together budgets based on what polls well, he said, and the latest one simply preserved the status quo.

"This Government is the political equivalent of Milli Vanilli - lip syncing when they should be leading."

New Zealand First leader Winston Peters said the country had been delivered "the get stuffed Budget". His party was the only one capable of addressing "an elephant that is so big in the room that nobody else can get in" - immigration levels that were straining services.