May budget to indicate future of tax cuts

Finance Minister Bill English has warned that scheduled tax cuts may not be affordable. Photo / Mark Mitchell

Taxpayers will get an indication in the May 28 budget on whether the scheduled 2010 and 2011 tax cuts will go ahead, Finance Minister Bill English said today.

From tomorrow many people will begin paying less tax with the income of a worker on the average wage of $48,500 increasing by $18 a week.

Both Mr English and Prime Minister John Key have been warning for some months that further tax cuts scheduled for the next two years may not be affordable.

They are concerned that unless the economy improves and the tax take increases they will be faced with large budget deficits for the foreseeable future.

The forecasts have been described by Mr English as unacceptable as they would lead to large debt levels, credit risk downgrades and higher interest rates for everyone.

Mr English said future tax cuts were dependent on the future economic circumstances.

"We want to keep the Government's books in reasonable shape," Mr English said.

"We want to consider the economic outlook and see if was can proceed with them. We are very keen to see lower taxes... those are the kind of judgments we'll be making over the next few months."

Asked when this would become clearer, Mr English pointed to the budget as containing indications about the possibility of planned tax cuts being canned.

Mr English said that tomorrow's tax cuts would deliver a billion dollar a year boost to the economy while changes to the business tax regime will help companies get through the recession.

For earners, the changes mean tax rate cuts and threshold changes, as well as a new Independent Earner Tax Credit, which will give an extra $10 a week to those earning between $24,000 and $44,000 a year who do not receive a benefit, Working for Families tax credits or national superannuation.

Parties to the left and right of National attacked the party for the tax cuts.

Labour said they would deliver nothing to anyone with children who earned less than $40,000.

ACT's finance spokesman Roger Douglas said the Government was having to borrow to fund the cuts.

If the tax cuts cost $1 billion a year this meant that within five years they would cost $1.4 billion due to the interest charges.

Tax cuts were only sustainable if they were matched by a reduction in expenditure, Sir Roger said.

Meanwhile, Labour has attacked the Government for advertising the $10-a-week independent earner tax credit which starts tomorrow but Prime Minister John Key says it was cheap compared with Labour's taxpayer-funded messages while it was in power.

Labour's deputy leader, Annette King, took on Mr Key in Parliament today saying that when National was in opposition it described all government advertising campaigns as political propaganda.

"But the first opportunity they get to dip their paws into the public purse, they do it," she said.

"They're running very large advertisements in daily papers about the new independent earner tax credit."

Ms King said the ads appeared to encourage readers into thinking most of them would be entitled to the tax credit when 80 per cent wouldn't get it.

Mr Key said the ads were within the guidelines and he was surprised Ms King had raised them.

"That's a programme that affects 630,000 New Zealanders," he said,

"As of tomorrow they'll get $10 a week."

Mr Key said the ads were costing $600,000 compared with the $21.5 million the previous government spent advertising Working for Families.

- NZPA