Labour raises tax stakes

Michael Cullen

A healthier-than-expected tax windfall has given Labour the chance to launch a pre-emptive strike on National's tax cuts by announcing a $438 million plan to boost middle-income families' wallets.

With the election turning into a bidding war, Labour yesterday announced an expansion of its Working for Families package to 350,000 families, 60,000 more than the original plan, as well as higher payments for 110,000 already qualifying families.

The move to bolt bits on to the income supplements package - now being called "family tax relief" - will increase its cost at maturity from $1.1 billion to $1.5 billion.

Seventy-five per cent of all New Zealand families with children will benefit, up from 61 per cent in the original package.

It will mean an average increase of about $115 a week to families with children in the $25,000 to $45,000 income band and an average increase of about $80 a week to families in the $45,000 to $70,000 band.

The money comes from Labour skimming off the Government's healthier-than-expected books - boosted by higher than forecast tax revenue - and follows its high-impact student loans pledge to axe interest.

Prime Minister Helen Clark said a family with two children on $65,000 would get $64 a week extra from next April 1, rising to $84 by April the following year. Under the original package they would have got nothing.

She said although many low and modest-income families benefited from Working for Families, announced in last year's Budget, many still felt it was hard to get ahead.

"The same applies to middle-income, single-earner families with children.

"Labour believes that the decision to have children and raise a family should not condemn households to years of penny-pinching."

The new plan means even a family with four children and an income of $109,000 will get more - $43 a week - from April 1, 2007.

Helen Clark said the fiscal outlook in the Pre-election Economic and Fiscal Update (Prefu) released yesterday showed there was room to pay for targeted tax relief for families further up the income scale.

The expansion means any two-child family will effectively pay no tax (the tax they pay is more than offset by payments from the Government) until their joint income reaches at least $35,000. That compares with a $27,000 cutoff under the old package.

It will also reduce the rate at which Family Support abates from 30 per cent to 20 per cent.

The new payments would be paid through Inland Revenue and recipients can get the money weekly, fortnightly or annually in a lump sum.

Immediately before the announcement, Finance Minister Michael Cullen praised the Government's handling of the books at the release of the Prefu, which showed healthier cash and operating surpluses than predicted in the Budget forecasts in May, thanks partly to higher than forecast tax revenue.

National finance spokesman John Key, who today unveils an alternative budget that sets the parameters of his party's tax cuts, said Labour's move confirmed New Zealanders were being "grossly overtaxed".

"Labour is awash with workers' cash. Faced with such an embarrassment of riches, Labour's gut instinct is to extend the welfare driftnet to middle-income New Zealanders. It's middle-class welfare.

"It's a bidding war where Labour are prepared to throw the ranch at a group that they see themselves vulnerable with."

Mr Key said National had a responsible plan to lower taxes and provide the right incentives for all working people to get ahead, not just a chosen few targeted by Labour for their votes.

Susan St John, an Auckland University senior economics lecturer and Child Poverty Action Group member, welcomed the raising of the Family Support threshold from $27,500 to $35,000.

However, she said that the moves had nothing to do with alleviating poverty and were solely to counter the impact of National's tax cuts.