Aid on rates over $160

About a third of New Zealand's homeowners will get a tax break next year to cope with escalating property rates.

Prime Minister Helen Clark used a Grey Power conference in Rotorua last night to announce that the Government will give away $50 million a year to low-income households struggling to pay their rates bills.

Ratepayers will be able to apply to their local councils to deduct two-thirds off their rates bills above $160. The deduction will be capped at $500, and will be reduced by $1 for every $8 the household earns above $20,000 a year for childless households, such as superannuitants.

Families with children will be allowed to earn a further $500 a year for each dependent child.

A family with two children, paying $2000 a year in rates, will qualify for a partial rebate on incomes of up to $30,813 a year.

The Government estimates that up to 300,000 households will qualify - more than a third of the country's 868,000 homeowners.

The move, announced before the general election expected to be held in September, is the first breach of New Zealand's policy against personal income tax concessions since former Finance Minister Roger Douglas abolished most tax breaks in the 1980s.

Tax expert John Shewan said the only other remaining concession was a rebate of up to $630 a year for donations. "This is a quaint relic from decades gone by that most of us had frankly forgotten about," he said.

"One of the criticisms of these kinds of things is that it confers a benefit on those who own their own homes, but those in rented accommodation will not get the same relief."

The Government has acted because of large rates increases - up to 17.4 per cent in Papakura.

National Party leader Don Brash initially took a hard line on the issue when he spoke at the Grey Power conference yesterday afternoon, telling questioners that they were already compensated for rising rates, which were included in the consumer price index which was used to set superannuation levels.

But after Helen Clark announced the rebate last night, he said National would support the Government's move.

"The real mischief is the local body rates increasing significantly faster than general inflation," he said. "It would be nice to think we could roll back the rapid increase in rates."

The concession by both parties came on the day after New Zealand First leader Winston Peters promised to make a $700 million "golden age card" of higher superannuation and discounted goods and services for the elderly a "bottom line" for his party's participation in any coalition.

In his lunchtime speech, Dr Brash warned against politicians offering "fool's gold", which would have to be funded through higher taxes and would drive young people overseas.

"You can try to tax people, but you can't make them stay and be taxed," he warned.

He refused Grey Power's pleas to raise superannuation and to abolish the system under which people in rest homes have to spend almost all their assets on rest home charges before receiving a Government subsidy.

Abolishing the asset test, he said, would be "hugely expensive", and the Government would have its hands full coping with extra costs likely to run into "hundreds of millions of dollars".