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Finance Minister looking at tax cuts for first Budget, 17 February 2017

Speaking at an event on 16 February 2017 hosted by Massey University and the Auckland Chamber of Commerce, the Minister of Finance, the Hon Steven Joyce, commented that tax cuts for lower and middle-income earners are one of four key areas he is looking at for his first Budget on 25 May 2017. The four key areas are as follows:

  • delivering better public services for a growing country
  • building the infrastructure needed in growing a modern economy
  • paying down debt as a percentage of GDP, and
  • reducing the tax burden and, in particular, the impact of marginal tax rates on lower and middle income earners when the Government has room to do so.

The Minister also offered some views on the current state of the New Zealand economy and infrastructure. Some of these views are as follows:

Economic outlook

Treasury is forecasting 3.5% growth for each of the next two years — averaging 3% over the total five years. New Zealand currently has the fourth fastest growth rate in the OECD. The proportion of the total population aged 15 years or older in work is 66.9%. This is the highest rate New Zealand has ever had and the second highest employment rate in the whole of the OECD.

Diversification of the New Zealand economy

New Zealand is steadily diversifying into newer and higher value products and services and the Government’s Business Growth Agenda and Innovative New Zealand programmes are nurturing that growth.

The Economy — international trade

While the IMF has recently upgraded its outlook for world growth, there is also heightened uncertainty. There are moves towards old style trade protectionism, particularly from the new US administration. There is the added complication of Brexit as both the EU and the UK come to terms with how they will work together in future. On the plus side, both Brexit players see this as an opportunity to embrace trade with third countries like New Zealand. Under the National-led Government, New Zealand will stay at the forefront of advocating for free and fair trade.

Government’s books

Stronger economic growth is flowing through to the Government’s books and tax revenue continues to come in ahead of forecast. However, it is too early to be sure that a surplus will be achieved in the current financial year, particularly given the costs associated with the Kaikoura earthquakes.

Infrastructure investment

Infrastructure is a core part of the Government’s Business Growth Agenda and infrastructure investment is particularly important in Auckland. Whether it is ultrafast broadband, the roading network, the rail network, electricity transmission, or social infrastructure like schools, hospitals and prisons, the Government is overseeing the biggest infrastructure programme in New Zealand in many decades.

Demand management

Beyond the current building programme, the Government is going to have a look at demand management to reduce the reliance on the road corridors, in favour of buses, trains and ferries. The Government’s position is:

  • any road pricing initiative on existing motorways and highways would predominantly be a replacement for petrol taxes and road user charges, not in addition to them, and
  • here is no interest in introducing a regional fuel tax because such taxes are administratively difficult, prone to leakage and cost-spreading, and blur the accountabilities between central and local government.

The Government is keen, however, to have a more detailed discussion about demand management tools and to explore further options for longer term funding for new infrastructure including the use of private finance for certain projects.

Infrastructure for more housing

The Government has put $1 billion on the table for a Housing Infrastructure Fund to assist councils with funding the infrastructure for new ratepayers without leaning too much on existing ratepayers. The Government has received $1.79 billion of proposals seeking support from the $1 billion housing infrastructure fund, which could help build 50,000 new dwellings. At this stage, however, only a small number of the 17 proposals received through the expressions of interest phase would result in projects being advanced earlier than previously planned by councils. More ambitious projects are required that will have a more positive impact on housing supply over the next five years. The Government will also investigate other financing options that bring in private sector capital to sit alongside council and government capital.

Source: www.beehive.govt.nz