John Key is being pretty evasive on his tax cut plan. He won’t say whether the famous ‘$50 a week for the average worker’ (note that’s not every worker, your income has to be $47K plus) is additional to Labour’s cuts, the first round of which came into effect today. Given the evasiveness, it’s safe to assume that it won’t be. In fact, Key now refuses to even confirm that $50 range.
The other question is how the tax cuts will be funded. There’s little or no money in the kitty, so it’s got to be borrowing or spending cuts. Part will be borrowing. National says it woud borrow for infrastructure but that’s money it doesn’t have to fund through tax, the borrowing allows tax cuts. Cryptically, Key said this morning that National’s tax cuts would be bigger than Labour’s but the same on ‘a net basis’ because they would change ‘two things’.
So, what can these ‘two things’ be? One will be Kiwisaver. It is one of the few large areas of government spending that National has not guaranteed. National clearly intends to slash spending on Kiwisaver, presumably by changing the employer contribution. The only other large area of government spending that they have not guaranteed is education but they can’t slash that. They need those middle-class mums to get them over the line. No, the second thing will have to be a change to Labour’s tax package. Specifically, they could remove the increases in the 21 cent threshold – currently set to rise from $14K to $20K in 2011. That would free up around a $1billion that coud be re-directed to cuts at higher incomes. Of course, that would mean smaller tax cuts for most people; most of the money would go to the well-off.
Whatever the package turns out to be, it had better be good. National has generated enormous expectations around tax cuts. They have promised a package that will be a panacea, solving everything from the recession, to doctors’ strikes, to emigration, to pain at the petrol pump. National has spent 9 years building expectations of the tax cuts it will offer. Next week, they will finally have to deliver.