Tax cuts at a cost in Paul Goldsmith's mother of alternative budgets

National has walked back on its controversial debt target, promising big tax cuts and a much looser debt target in its alternative budget.

But there are still big cuts to the government’s day-to-day spending, with operating allowances – that’s the new money allocated in each budget – slashed to between 60 and 75 per cent of what Labour has promised over the next three years.

Those cuts would save $7.3 billion over the next four years, but it will mean some tough choices when it comes to maintaining public services, which might not get the money they need to keep running at current levels.

The big sweetener is a temporary tax cut. This is achieved by lifting each of the tax thresholds on December 1. The 10.5 per cent threshold would rise from $14,000 to $20,000, with the 17.5 per cent threshold lifting to income between $20,001 and $64,000.

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The 30 per cent threshold would apply to income between $64,001 and $90,000 and the 33 per cent threshold would apply to income above that.

National thinks the changes will cost the Crown $4.7b over the 16 months they’re in effect, before the thresholds snap back to normal on March 31, 2022.

Finance spokesman Paul Goldsmith reckons the average income earner would pay $3000 less in tax over the 16-month period.

Judith Collins said the budget was “responsible”.

“Responsible economic management has been a hallmark of successive National Governments. The Government I lead will continue that tradition,” she said.

Paul Goldsmith unveils National's alternative budget.

Ross Giblin/Stuff

Paul Goldsmith unveils National’s alternative budget.

Businesses will also get a tax break, with National promising to double the depreciation rate for businesses to invest in new plant, equipment and machinery over a year.

The party estimates this will cost $430 million a year for five years, or $2.15b in total.

The figures come with the imprimatur of economic agency NZIER, who has vetted them and says they stack up.

Finance Minister Grant Robertson described the plan as “desperate and reckless”.

“Judith Collins’ unaffordable plan will lead to harsh cuts to public services in the middle of a global pandemic, when we need a well-resourced health system more than ever,” Robertson said.

“National has also changed tack again on debt and taxes in this announcement. They now have as many positions on the economy as they do on the border.

“After three different leaders since the Covid crisis began, National – backed by a radical ACT party – are a risky alternative,” Robertson said.

The party wants to cut new spending to a point where New Zealand returns to surplus before the decade is out, with a small surplus posted in the 2027/28 year.

That’s in contrast to the current Government, which forecasts deficits into the 2030s.

STUFF

National leader Judith Collins talks about what New Zealand falling into recession means.

National is also promising a big reduction to net debt levels, although it has backflipped on its initial plan to reduce net core Crown debt to 30 per cent of GDP by roughly 2030.

Speaking before presenting his draft budget, Goldsmith said it was “just not practical and feasible to get back to that level”.

Now, Goldsmith thinks he can reduce net core Crown debt to 34.9 per cent of GDP by 2033/34. That’s still a lot lower than the current Government’s debt track, which would see net core Crown debt at 47.9 per cent of GDP in the same year.

There had been speculation ahead of the release of Goldsmith’s draft budget that National would assume a faster GDP growth track, which would allow it to shirk its tight debt target by simply making the economy bigger. In the event, Goldsmith has opted to use Treasury’s assumed GDP track, but shift the goalposts of his own repayment threshold.

National says it’s also counted off-balance sheet borrowing, including the $10b borrowed by NZTA for the party’s transport splurge, towards the overall core Crown debt figure.

But that lower debt track comes at a cost. National plans to have lower operating allowances each year out to 2033/34, saving $51.4b over that period.

That would mean some very difficult decisions later in the decade – particularly around healthcare, where cost are expected to rise as a result of an ageing population.

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