Tax Cuts at a Cost in the Mother of Paul Goldsmith’s Alternative Budgets

National has backtracked 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 in government day-to-day spending, with operational appropriations, which is the new money allocated in each budget, cut between 60 and 75 percent of what the Labor Party has promised over the next three years.

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

The big sweetener is a temporary tax cut. This is accomplished by raising each of the tax thresholds on December 1. The 10.5 percent threshold would increase from $ 14,000 to $ 20,000, and the 17.5 percent threshold would rise to income between $ 20,001 and $ 64,000.

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The 30% threshold would apply to income between $ 64,001 and $ 90,000 and the 33% threshold would apply to higher income.

National believes the changes will cost the Crown $ 4.7 billion over the 16-month period, before the thresholds return to normal on March 31, 2022.

Finance spokesman Paul Goldsmith estimates that the average income earner would pay $ 3,000 less in taxes 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 that I lead will continue that tradition, ”he said.

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

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

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

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

That is in contrast to the current government, which is forecasting deficits for the 2030s.

National also promises a large reduction in net debt levels, although it has backtracked on its initial plan to reduce the Crown’s net debt to 30% of GDP by around 2030.

Speaking before presenting his draft budget, Goldsmith said that “it was simply not practical or feasible to go back to that level.”

Now, Goldsmith believes it can reduce the Crown’s net central debt to 34.9% of GDP by 2033/34. That is still much lower than the current government debt tracking, which would see the Crown’s net central debt at 47.9 percent of GDP in the same year.

Before the publication of Goldsmith’s draft budget, it had been speculated that National would take on a trajectory of faster GDP growth, allowing it to circumvent its strict borrowing target simply by making the economy bigger. In the case, Goldsmith has chosen to use the GDP track assumed by the Treasury, but change the targets for its own repayment threshold.

National says they have also counted their off-balance-sheet loans, including the $ 10 billion loaned by NZTA for the party’s transportation splurge, toward the overall Crown debt figure.

But that track of lower debt comes at a cost. National plans to have lower operating allocations each year through 2033/34, saving $ 51.4 billion during that period.

That would mean some very tough decisions later in the decade, particularly when it comes to healthcare, where costs are expected to rise as a result of an aging population.