Tax cuts vanish on groceries and bills

A ShapeNZ survey found that most people will use the extra pay for living expenses and to reduce debt. Photo / Dean Purcell

Most New Zealanders will spend the extra money from the first round of tax cuts covering day-to-day living expenses.

As household expenses increase and people start to realise the extent of the recession, 54 per cent of Kiwis have stated in a survey of more than 2500 people this week that they will use the Government's April 1 tax cuts - worth between $10 and $18 extra per week to most people - on food and household running costs.

The ShapeNZ survey commissioned by the New Zealand Business Council for Sustainable Development revealed 18 per cent of people would save the money, 14 per cent would pay credit card debt and 8 per cent would reduce their mortgages.

This beat spending the money on extras such as entertainment, travel and consumer goods. People earning between $100,001 and $150,000 were the most likely to go shopping for consumer goods. Those least likely were those earning less than $20,000 a year.

Only a fraction said they would put it into KiwiSaver, the survey showed.

ASB chief executive Nick Tuffley said people appeared to be spending smarter during the credit crunch.

"I'm not too surprised that the indications are that a lot of the money will go into the everyday things. We've got to put into perspective with a permanent tax cut like this ... you're talking about a modest amount. It's not like a one-off big sum where people would have a tendency to blow it on a holiday or a new TV."

He said the next rounds of tax cuts may see a change in people's spending.

"People's priorities may change. We're hoping the existing economic climate isn't going to last forever, some people may just be a little bit under pressure at the moment."

Labour finance spokesman David Cunliffe said the survey showed "a resounding amount of common sense among New Zealand people".

"There'll be a lot of people feeling the pinch with power prices and things rising.

"Incomes won't be rising and income from savings will be less because of interest rates."

The Business Council said in its surveys over the past two years the enthusiasm for tax cuts has always been tempered by concerns to ensure interest rates and borrowing don't rise and social spending (on education and health and benefits) is not cut.

"This sensitivity doesn't seem to have changed with the economic downturn," council chief executive Peter Neilson said.

"This result points to the difficult balance to be achieved in this year's Budget."