The Government is being driven by fear of a Kiwi Brexit or Trump to focus its tax cuts package on those on lower incomes.
The Prime Minister confirmed over the weekend that the package was likely to be at least partly delivered through Working for Families and allowances like the Accommodation Supplement.
POLITIK understands some other tax benefits might be in the mix such as the In Work Tax Credit.
But Key hinted at the real point of the package in an interview on TV3’s “The Nation”.
“ Firstly, we need to get the HYEFU numbers at the end of the year,” he said.
“Secondly, we need to get the sense of where we are going in the budget and what our priorities are and ultimately what we want to have in budget 2017 and what we want to campaign on.”
Interviewer Lisa Owen then asked whether he was thinking about a Budget announcement or campaign announcement?
“Don’t know at this point,” Key replied.
That comment is a hint of where National believes it might be vulnerable at thee nxt election.
Bill English on TVOne’s “Q+A” appeared to confirm the Prime Minister’s suggestion that the eventual ap[ckage would not be a simple tax cut.
“I find it difficult to imagine you’d do only a package that consisted of changes in tax rates and thresholds, because that can achieve some things with incomes, but for a lot of lower income people, it doesn’t achieve much,” he said.
Though One News Comar Brunton polling last night showed National well ahead, Labour says its own polling shows that National is losing some support for the way it handles issues like housing and social equity but is still highly rated for its economic management skills.
One former West Auckland Labour MP told POLITIK last week that support for National and Key, in particular, was beginning to be questioned in the west of the city but the ex-MP felt that support was not yet ready to commit to Labour.
Next weekend’s Mt Roskill by-election will give an interesting insight into the mood of a middle New Zealand Auckland electorate and whether National’s support is fragile.
Though the seat is largely former state housing now largely occupied by immigrants, there are also sizeable middle-class enclaves in Hillsborough, Epsom and Mt Eden within the electorate. If National loses support there, it will be in trouble.
What National is worried about is a Brexit/Trump type backlash happening here.
One of Key’s top aides went to the Conservative Party conference in Britain to try to get to grips with how Brexit had happened and how the Party was preparing to deal with the forces which gave rise to it.
From what was learnt there the Government appears to have rejected a blanket tax cut because it would disproportionately reward those on higher incomes.
Furthermore, because of Working for Families, many people on lower incomes actually pay little or no income tax now so a cut would have only a marginal impact on them.
In the 2015 Budget, the Government increased the in-work tax credit at the same time as it restricted the income limits for Working for Families tax credits.
This policy change was part of the Budget 2015 package for children living in material hardship, which increased entitlement to the in-work tax credit, but steepened abatement of Working for Families Tax Credits for those on higher incomes.
Budget documents said: “The appropriation (for Working for Families) declines over time because income growth reduces entitlement for families with annual family incomes over the abatement threshold of $36,350.
“This decline is halted in years where per-child entitlements are increased through indexation, but there is no indexation in the 2016/17 year to halt this decline. “
So any changes to Working for Families might simply make up for what was, in effect, a freezing of the scheme in the 2015 Budget.
The Child Poverty Action Group launched a Fix Working for Families (FWFF) Campaign in April which particularly focussed on abolishing the In Work Tax Credit and proposed that Working for Families benefits be applied to all families regardless of whether they were in work or not.
The architect of Working for Families, former Finance Minister Michael Cullen, was challenged at a recent Fabian Society meeting by a representative of the Child Poverty Action Group about the credit and was asked whether he would support Labour extending it to all families with children.
“I certainly hope not,” he said.
“That may shock you, but it costs money to go out to work.
“There should be a reward for that and, yes, we can raise the minimum wage, but the answer is to increase the level of payments in Working For Families across the board.”
And from what POLITIK has learned Cullen and English might actually agree on that.