Employer ACC breaks better than tax cuts, says NZIER

Economic consultant NZIER says the Government could better stimulate the economy by cutting employment costs rather than taxes.

In a report released today, the group advocated temporary suspension of payroll taxes, such as the ACC levy, paid by business.

That measure could create more than twice as many jobs as the planned tax cuts, for the same price.

However, "fiscal stimulus comes at a cost -- there are no free lunches", study authors James Giesecke from Monash University and Chris Schilling from the New Zealand Institute of Economic Research (NZIER) said.

Quoting Treasury forecasts, the authors said the budget operating deficit was forecast to reach 3 per cent of gross domestic product (GDP) this year -- and possibly rising up to 57 per cent of GDP in 2023, if fiscal policy stayed the same.

"Fiscal stimulus of almost $10 billion over four years will result in an extra 10,000 jobs, in the short run, but will reduce future consumption by $160 per person per year ," the researchers said.

This was an indirect way of stimulating the economy, the report said, with taxpayers perhaps choosing to save the money, or spend it on imported goods .

However, if the Government put the money into temporarily cutting payroll costs paid by employers, it could generate up to 22,000 jobs for a similar cost.

They also recommended "well-targeted" infrastructure spending, though cautioned the challenge would be identifying where to spend in order to get the best long-term productivity gains.

Speaking on Monday about the May 28 budget, Prime Minister John Key said crucial decisions about planned tax cuts for 2010 and 2011 and whether to suspend payments into the New Zealand Superannuation Fund had been made.

Key has previously raised the possibility of a delay for the promised 2010-2011 tax cuts and Monday's announcement firmed that up even further.

"I certainly wouldn't support a cancellation of tax cuts but I can't rule out a delay," he said.

He said there was "a lot of difference between a cancellation and delay" and that option "could be acceptable" to him.

- NZPA