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No free lunch for struggling taxpayers

HIGH-income New Zealanders hoping for big tax cuts like those in Australia had their hopes dashed when the New Zealand Labour Government handed down its pre-election budget.

Finance Minister Michael Cullen, delivering his sixth budget, offered no "free lunch" for taxpayers and chose only to raise tax thresholds every three years at the rate of inflation.

Despite forecasting a budget surplus of $NZ6.7 billion for the next financial year, Dr Cullen said major tax cuts would deliver little to individuals at great cost to the Government.

"There is not room for large, significant tax cuts unless you're prepared to fund large, significant expenditure decreases or you're prepared to have large, significant increases in the gross debt to GDP ratio," he said. "There is no free lunch."

Instead Dr Cullen offered $NZ1000 each to those who take part in a voluntary savings scheme for retirement and another $NZ5000 if they use the funds to buy a first home.

Aspiring homeowners will have to wait until 2012 if they want to up the full $5000 housing grant from the Government.

The wait for workers wanting tax relief is not short, either. Tax cuts will be modest and will not take effect until 2008.

The National Party says voters now have a clear choice, with the Nats promising a tax-cut plan within weeks.

The Government indicated that the election would be in September.

But Dr Cullen warned that big tax cuts could happen only if they were accompanied by big spending cuts.

Under the package, low-income workers will get the least from Dr Cullen's decision to shift tax thresholds - only 67c a week for people earning more than $10,081 a year.

People earning more than $40,324 a year will be $6 a week.

Low and middle-income earners were the big winners from last year's Budget, when the Government unveiled its $1 billion Working for Families package.

But for workers at the $60,000-plus bracket and passed over by Working for Families, the pay-off after five years of booming economic growth will be just $10 a week.

It will also be two years before the Government launches its promised savings scheme. The scheme will be open to all workers and the Government will kick-start it with a $1000 savings sweetener.

The Budget included big spending promises in health and education, including 421 extra teachers.

The Government expects thousands of young New Zealanders will be helped into their first home through its assistance package - about 3000 of them once the Kiwi-Saver scheme is up and running and as many as 16,000 once the low and no-deposit mortgage guarantee scheme, now run through Kiwibank, is expanded.

But aspiring homeowners caught out by spiralling property prices question whether it will help them into a home.

Dr Cullen said he did not believe there was room to cur taxes earlier, despite a near-record $6 billion surplus. The economy was headed for a soft landing after five years of strong economic growth, he said, and the Government's books were headed for a $1.6 billion cash deficit by 2007.

The grants for first-home buyers and Working for Families would deliver more to those who needed it most than across-the-board tax cuts such as those National had promised, he said.