Show me the money!

Are you finding yourself on the brink of having to busk on Queen Street just to pay off the bills? You’re not alone as people around New Zealand feel the pinch of higher oil and food costs. After months of speculation about the size of tax cuts, New Zealanders will finally get a reprieve with taxpayers across the board benefiting.
    Those currently paying 15 percent tax on income up to $9500 will see their rate reduced to 12.5 percent, with the threshold increasing to $14,000. This will be effective from October 1, with the threshold increasing again in 2010
and 2011.
    Other tax rates will not see a drop, but will instead have their thresholds raised. Those paying 21 percent tax on income up to $38,000 will have that threshold increased to $40,000 from October. Lifting the thresholds means that you can earn more before you enter a higher
tax bracket.
    In dollar terms, if your annual income is around $20,000, then you will receive and extra $12 week from October. For those on the average New Zealand income of around $45,000 a year, the tax cuts will give you an extra $16 a week.
    This amount is substantially higher if you have children, as the increase in Working for Families tax-credits that would have occurred next year have been brought forward to October 1. A family with two workers and two children under 13 would be expected to receive around an extra $42 a week, including the aforementioned tax cuts.
    Of course, some of you reading this aren’t working so thanks to the government’s confidence and supply agreement with United Future, students receive $155 million in this year’s budget. Don’t expect to be splurging on luxuries anytime soon though – only some of us will benefit.
    For instance, there will be a 10 percent increase in the parental thresholds for the student allowance, as well as a reduction in the age limit for parental income testing from 25 to 24. Those with student loans get an increase in their living cost component to match inflation from $150 a week to $155.
    The lift in thresholds will give around 12,000 students new access to the student allowance, while the lift in the parental income testing threshold is expected to benefit 5000 students. While Dr. Cullen described his package as “both substantial and fair,” others criticised the paltry amounts given out.
    Jan Herman, president of AuSM called the government’s contribution to students “a drop in the bucket.”
    “While it was pleasing to see that a small number of students would benefit through an increase in access to the student allowance scheme, a tiny increase to the student loan scheme is honestly a bit of a joke,” he said.
    The reaction from the National Party was inevitably hostile, with leader John Key condemning the Labour Government’s tax cuts as “far too little, far too late.”
    He chimed in with an analogy that was reminiscent of Winston Peter’s assessment of 2005’s proposed tax cuts as large enough to buy “a packet of chewing gum.” This time around the commodity was slightly pricier: “New Zealanders have waited nine years and they will get a family-sized block of cheese. That is what the tax cut is worth.” And with that, “cheese” became the new buzzword of the day, although to be fair to Dr. Cullen, the price of cheese has risen 65 percent in the past year.
    Funnily enough, while many are calling the tax cuts inadequate, economists are saying they were over the top.
    New Zealand’s unemployment rate is still 3.6 percent – the sixth lowest in the developed world, meaning the economy has little room for expansion. An increase in demand for goods and services as a result of the tax cuts may merely exacerbate inflationary pressures, thereby increasing prices and forcing the Reserve Bank
to hold off any interest rate cuts, hurting mortgage holders.
    “Dr Cullen has thrown the kitchen sink and pot scrub at winning an election,” said Westpac chief economist Brendan O’Donovan.
    The irony, of course, is that most voters will think the cuts didn’t go far enough. There was clearly no safe ground for the Finance Minister.
    Shrewdly though, Dr. Cullen has handed the National Party with a dilemma. They may not be able to reduce taxes further as there may not be much left in the government’s coffers if they win the election.
    After boasting that National could offer New Zealanders “north of $50” a week, John Key seemed to back down on his claims after the budget, replacing it with standard rhetoric such as “tax cuts are a priority” and “New Zealanders will be better off.”
    So until we get a glimpse into National’s offering (which Finance Spokesman Bill English assures us will be “closer to the election”), voters will have to wait and see whether they can
do better.
    The Labour government has done all they could to shift the momentum their way and will be waiting with bated breath to see whether this translates into better polling results.
    For the rest of us, at least we can all look forward to a few extra bucks in our pockets in five months time. Hell, a block of cheese is better than nothing.