Labour says inflation will make liar of Govt

Phil Goff. Photo / Natalie Slade

Party says 'deceitful' Budget claims don't allow for price rises in coming years

Students and unemployment beneficiaries will be worse off under the Government's tax package next year because their tax cuts will be swallowed up by inflation, the Labour Party says.

But its own number-crunching shows that most workers, even a minimum wage earner, will still be better off overall - though not by as much as the Government is claiming.

Thursday's Budget included across-the-board tax cuts that the Government said were big enough at all income brackets to outweigh an increase in GST to 15 per cent.

Labour has attacked the Budget and the estimates as deceitful because they do not take into account the effect of inflation - forecast to rise to 5.9 per cent next year - on everyday prices.

"If you are calculating who wins and who loses, you have to calculate it in real terms otherwise it's a nonsense," said the party's finance spokesman, David Cunliffe.

"It's more of a stand-still [Budget] than a step-up, and the guys at the top are still getting a windfall."

Mr Cunliffe said the Labour examples did not factor in likely rises in rents, which would push any household net gain towards the negative.

The Government says the long-term picture should be looked at because inflation is forecast to drop to 2.4 per cent in 2012 to 2014, when wages are forecast to rise by at least 3.5 per cent a year.

Labour's calculations factor in the inflation rate and the Treasury's projected wage rise of 2.6 per cent. With these, it says a student on an accommodation supplement will be $3 a week worse off; an unemployment beneficiary will lose $10 a week.

But the minimum-wage worker will be better off by $1 a week, the average wage earner by $7 and a young couple earning $120,000 by $20.

Other examples have families worse off, assuming they will have to pay a weekly $32 fee per child for early childhood education that has previously been fully subsidised.

A spokesman from Finance Minister Bill English's office conceded that some tax cuts would be gobbled up by inflation next year, "but over time it is crawled back".

He said Labour's examples of families facing new early childhood education fees represented a small group, not the average family.

"They [Labour] are cherry-picking something that suits their political objective," the spokesman said.

Prime Minister John Key moved yesterday to calm concerns. In a post-Budget speech to the Trans Tasman Business Circle, he said the GST rise would not have a long-term effect on inflation.

"In fact, in the years when [Labour] were in office where there were no adjustments to tax rates ... inflation rose by 29 per cent."

WHATWILL YOU (REALLY) GET?
Weekly net gain from the Budget

National estimates: Tax cuts minus GST rise
Labour estimates: Add 5.9% inflation and a 2.6%wage rise

Single earner, $50,000
* National +$16
* Labour +$7

Young couple, $120,000
* National +$40
* Labour +$20

Student, $19,000
* National +$3
* Labour -$3

Unemployment beneficiary, $12,000
* National +$1
* Labour -$10

Minimum wage worker, $27,000
* National +$7
* Labour +$1

Family (2 kids) on $76,000
* National +$25
* Labour -$55
(assumes Early Childhood Education fees)

Superannuitants (couple), $29,000
* National +$11
* Labour +$6

Solo mum on a benefit (3 kids), $33,000
* National +$3
* Labour -$73