What to do with huge surpluses coming our way

Prime Minister Bill English is being coy, and will not say whether a $3b war chest was still the gold standard – and he insists the numbers for the Budget had not been crunched yet.

But with surpluses tipped to hit $3.3b for the 2017-18 year rising to $6.8b in two years time the free-board is there. The latest revenue numbers suggest surpluses could be bigger still.

Look for a small change this year, taking effect in April 2018, with bigger cuts down the track. A small taste just after the election and a promised feast if voters re-elect National.

By the Government’s own admission the aims of its “tax and family package” are two-fold; delivering to everyone while boosting incomes for low- and middle-income earners.

The first could be achieved by increasing tax thresholds.

​Under current tax settings you pay 10.5 per cent on income up to $14,000 a year, 17.5 per cent from $14,000 to $48,000, 30 per cent above that until the top 33c rate cuts in at $70,000. Finance Minister Steven Joyce has repeatedly highlighted that $48,000 threshold, pointing out the big jump at that point from 17.5 per cent to 30 per cent.

But to deliver meaningful assistance to low and middle income earners the Government will likely have to look beyond changes to tax rates and thresholds – which tend to give the most dollars to the better off – towards the Working for Families regime. In its original form it was designed by Labour for precisely that purpose – to target extra cash where the tax system on its own could not reach.

It would make perfect political sense too.

National has already won kudos for boosting some benefit rates by up to $25 in the 2015 Budget; a surgical strike into Labour-Green territory.

What better way to revisit past victories than take Labour’s own invention and give it a fresh coat of blue paint.

I wouldn’t get too excited about surpluses, not when we are still in a very active period of quakes slowly moving up the country.  $10b will be a drop in a bucket when Wellington gets hit a little harder.

In the mean time, we should do what every sensible household would do.  Pay down debt, give your self a treat, and keep the remainder aside for emergencies.

 

– Vernon Small, Stuff

 


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