Don't blame deficit on tax cuts - English

  • 16/12/2014

Finance Minister Bill English is rejecting claims the Government's 2010 tax cuts are preventing the country's finances getting back into the black.

Yesterday Treasury announced a predicted $572 million deficit for the year to June 30, 2015. National went into the election promising a surplus, which Treasury estimated at $297 million in August, down from May's Budget forecast of $372 million.

The shortfall is being blamed on the drop in dairy and petrol prices.

"Obviously that comes through into the amount of GST that the Government collects – the higher the price at the pump, the more GST the Government collects," PwC director Chris Money said on Firstline this morning.

"Those reductions in petrol prices, and as well some of those pre-Christmas discounting that retailers have done to get people into the shops, that also impacts on the GST tax take."

Green Party co-leader Russel Norman yesterday said the Government has borrowed nearly $5 billion over the past four years to pay for its 2010 round of tax cuts.

"Without these ill-timed tax-cuts, Bill English could have run a fiscally responsible Government, restoring it to surplus this year. National have stretched their economic credibility to breaking."

Speaking on Firstline this morning, Mr English said the Government was balancing the need to balance the Government's books with "the need for businesses and households to have reasonable tax rates".

He also says the 2010 tax cuts resulted in more tax revenue for the Government, not less.

"The surplus target's had a big effect for us. It's made the Government think very hard about how it spends taxpayers' money, and we're doing a better job of that," says Mr English.

"Our public service is doing a very good job of producing better public services with not much money, and I think it's also been a bit of an anchor for the general public, who can be reassured that the Government is focused on the same things they've been focusing on, and that's been getting our house in order.

"It would be good to get there, we're pretty close – we've come from an $18 billion deficit, and this is a forecast for half a billion, and we'll know in October next year whether we actually got to a surplus."

Dr Norman has accused National of putting all its eggs in the dairy basket, instead of investing more in research and development to diversify the economy. But Mr English says dairy makes up only 8 percent of the economy, and the impact of lower dairy prices is being overstated.

"Dairy prices are down, but with lower interest rates, lower inflation, the other 92 percent of the economy's going pretty well. We've also got good control of expenditure, and we might do a bit better than expected there.

"Bear in mind here we're talking about $500 million out of about a $70 billion spend, so pretty small shifts can take you over the line or keep you under the line."

Mr English is optimistic the Government will buck Treasury's predictions and still turn a surplus, but Mr Money is sceptical.

"I think it's still going to be quite a hard ask to get through to a surplus by the end of this financial year," he says.

"Even though prices such as the dairy price overnight have increased, we're still looking at a low-interest environment, and also low import prices coming through as well, which is impacting on the Government's tax take."

Despite the shortfall this year, Treasury still backs Mr English to pull the country into the black over the next few years – predicting a $565 million surplus in 2015/16 and $4.1 billion in 2018/19.

Mr Money says it's looking increasingly likely Mr English will deliver another round of tax cuts ahead of the 2017 general election.

"He's taking $500 million a year out of each of the next two Budgets in terms of that new spending provision, but that's come back into an additional $939 million in the final year of the Parliamentary term, so that brings the new Budget provision – that's the new spending that the Government's intending to take – up to about $2.5 billion in that final Budget of the Parliamentary term," says Mr Money.

"Certainly not now, but 2017, 2018, we've allowed some room for moderate tax cuts for low and middle-income families," says Mr English.

But he insists any future tax cuts won't be funded through a "slash and burn" of public services, so a Budget surplus would be necessary if they are to go ahead.

3 News

source: newshub archive