Tax cuts on the horizon as Bill English lands a plump surplus

Finance Minister Bill English and Prime Minister John Key on the way to deliver Budget 2016. PHOTO/Mark Mitchell

Tax cuts are on the cards after the Government recorded a larger than expected surplus.

The Crown accounts for the year to June showed a surplus of $1.8 billion - higher than the $668 million forecast in the May Budget.

English said that meant the Government was in a position to make choices such as whether to go ahead with tax cuts.

However, he warned there were other priorities such as paying down debt.

People would have to wait to see whether there was an election year lolly scramble, but he planned to deliver a "responsible" Budget in 2017.

"We want to both incentivise people in the labour market and ensure everyone sees the benefits of growth on the one hand, on the other hand we want to make sure New Zealand as a whole is in a better position to weather the next shock with lower debt."

Prime Minister John Key has previously raised the possibility of a $2-3 billion tax cut package and raised concerns about the impact of "bracket creep".

The Crown accounts showed that $300 million of the increase in tax revenue over the past year was the consequence of fiscal drag, including the effect of wage increases pushing workers into higher tax brackets.

Asked whether tax cuts or debt pay-down was more important, English said the Government aimed for a balance.

"I think the public are economically literate and if they saw a Government just trying to be blatantly political, that's something we leave to the Opposition.

"You can get through surpluses very quickly, so there are pretty tight balances by the time you weigh up expectations about more funding for services for the public, the possibility of tax reductions, infrastructure spends. In some ways it's easier to have deficits because you just say 'no, we can't do it'."

The Government had also said it would restart contributions to the Super Fund once debt was down to reasonable levels.

Labour's finance spokesman Grant Robertson said debt levels were still worryingly high and New Zealanders were not seeing the benefit of economic growth.

"It is all well and good to be pleased about a surplus, but when there are children living in cars and garages, older New Zealanders in pain waiting for operations, and school funding going backwards, the Government needs to take a long hard look at their priorities."

The Government shelved plans for a small $1 billion tax cut programme in last year's Budget and instead put the money into health.

However, Key signalled more significant tax cuts were in the pipeline either for 2017 Budget or as a National Party policy in the 2017 campaign.

The last round of tax cuts were in 2010 when National reduced the thresholds and lifted GST to 15 per cent to pay for it. It left the "average earner" $15 a week better off.

The Crown got $70 billion in tax revenue, including $31.6 billion in income tax and a further $18.2 billion in GST.