A “Families’ Income Package” is likely to be at the core of this week’s Budget.
Sources close to the Government have “leaked” details of the Budget to POLITIK.
Finance Minister Steven Joyce has been signalling for some time that the Budget would involve movements in the tax thresholds.
POLITIK understands that the movements will be for the two lowest thresholds.
Currently tax on income up to $14,000 is 10.5% and for income from $14000 – $48000 tax is 17.5%.
Those thresholds will both rise.
There will also be changes to Working for Families and an increase in the Accommodation Supplement.
POLITIK has been told that added together the tax threshold and Working for Families moves could mean families where one parent is in work with two children would see their income rise by what is being described as a “significant” weekly figure.
There will also be more money for vote Health and Pharmac — possibly to account for the increasing demand for expensive biologic pharmaceuticals used in new high-tech cancer treatments.
Other funding increases are likely to be directed to infrastructure issues caused by migration such as the need for extra classrooms, particularly in Auckland schools, and the host of transport and other infrastructure issues in Auckland.
One demonstration that the Government now has a surplus and is willing to spend it will come with what one source has described as a “significant” increase in funding for Radio New Zealand.
That may be related to the sale of RNZ’s Auckland headquarters.
Funding for RNZ has been frozen since the current Government’s first Budget in 2009.
Prime Minister Bill English yesterday was careful to downplay the extra spending in the Budget.
“The money in the Government’s accounts has been earned by hard working taxpayers, and we want to ensure that in an election year when there is a temptation for bidding wars, that we make the biggest difference we can with those surpluses,” he told his weekly press conference yesterday.
And that is what the Budget is all about — using the surplus to make a big political difference.
On the one hand, the Government is likely to have a large surplus to spend and at the same time Ministers are conscious that they need a block buster as they head for what will be a tight election without the vote winning power of former Prime Minister, John Key.
For some time now the talk in the Beehive has been of the need to support people on lower middle incomes.
But there is also a political recognition that they would be unwise to be seen to be delivering more money to already wealthy higher income earners.
In May last year, Prime Minister John Key suggested it might be possible to have tax cuts in this Budget.
He said the pressure for tax cuts would grow over time, as the average wage – then about $68,000 – got closer to the top personal rate of 33 per cent at $70,000 a year.
“So there is going to have to be movement,” he said.
Key suggested a “meaningful tax cut” of about $20 a week to people earning around $68,000 a year would cost about $3b.
That has been rejected.
POLITIK understands that by concentrating the cuts on the lower tax thresholds, the increase per person will be significantly higher than $20 a week for those lower income earners.
There was a political point to this too.
Ministers did not want to be seen to favouring the better off at the expense of lower income workers.