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NZ government considering 'family package' rather than tax cuts alone in 2017 budget

Monday 21st November 2016

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The government is considering an election year budget that includes a mixture of tax and other measures aimed at lower income families, Prime Minister John Key said.

Speaking to reporters at the APEC leaders’ summit in Peru, Key fielded questions about the fiscal impact of last week’s earthquakes and whether long-signalled tax cuts were still possible.

Key said the Treasury was already reworking the numbers for the December half-year economic and fiscal update (HYEFU), which may be slightly delayed because of the need to make a preliminary estimate of the impact of the quakes on the government’s books.

However, the costs were more likely to be one-off, capital spending requirements rather than ongoing, annual expenses.

“When we get an assessment of what it’s going to cost, it will be one factor that has some impact on our capacity to move in the short term, but probably not much in the medium term,” Key said.

On the impact of the quakes, Key said they could affect economic growth, which in turn could hit tax receipts, which have been running well ahead of forecast in recent times.

As a mainly tourist town, Kaikoura would be hit by its isolation after the quakes, but it accounted for only 1.5 percent of total tourism activity in New Zealand, “so it’s not going to be that significant".

“Wellington’s a slightly different issue as to how those things play out,” he said, as the capital city copes with a large number of commercial building closures and disruption to port operations.

On the affordability of what he framed as a "family package", for implementation if National won the 2017 election, Key said the forecast outlook for budget surpluses was strong.

“If you go out 2019/20, they were starting to be in the order of eight, nine billion dollars as projections," he said. "You can see an earthquake – let’s just say it’s costing a couple of billion from the Crown’s perspective – it’s not material really for that and the difference, of course, for the tax or family package or whatever we might do is that’s a reoccurring impact to our baseline as opposed to a one-off impact on our capital budget."

“It’s a factor that could have some impact on the decisions we make and we can’t say that it wouldn’t," Key said. "But nor would it render us not in a position to be able to consider a range of things that we would want to do, either campaign on or carry out if we got a fourth term.”

Asked whether he was backing off tax cuts because they were easy to attack politically, Key said tax cuts weren't always an efficient way to deliver for lower income households.

“So, let’s wait and see," he said, pointing to the package implemented early in the government's term, which included a mixture of tax cuts, alterations to the Working for Families tax credit system, and included a tax rebate for low-income earners. 

“I’ve made it quite clear I think we should be moving forward over time on trying to find ways of making sure that New Zealanders get to keep more of what they earn and we need to look at the most effective way of doing that. It isn’t correct to say that it will always solely be through tax,” Key said.

Also weighing on budget decision-making were other new sources of cost, including a likely increase required for Accident Compensation Corp funding “mainly because of the discount rate” and a blow-out in the prison population requiring unexpectedly large new spending on new prison space.

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