Editorial: Election-year tax cuts can't be justified

Finance Minister Bill English, with Prime Minister John Key, on his way to the House to read his Budget 2015. Photo / Mark Mitchell

Opinion

Which one of these does not belong? (a) Returning to surplus. (b) Reducing net debt. (c) Cutting ACC levies. (d) Cutting income tax. (e) Reducing debt quicker. The answer obviously is (d). The Government calls these its five fiscal priorities but the fourth, projecting income tax cuts from 2017, has no right to be in a Budget that has just failed to return to balance and projects a negligible surplus next year.

Without a sustained return to surplus none of the Government's responsible priorities will be possible. It will not have spare cash to start paying down debt from 2018, let alone (e) finding the revenue to get the debt down to 20 per cent of GDP sooner than 2020. That is the target that matters, it is where the net government debt needs to be in case of another international economic upset. The Labour Government's surpluses and low debt enabled National to run deep deficits in the last crisis. It is taking its time to restore a fiscal cushion.

Finance Minister Bill English declared yesterday, several times, "The Government does not intend to make cuts to services, programmes or income support simply to chase a surplus." Why not? The Budget did in fact include a notable cut, to the $1000 KiwiSaver starting incentive. That was ripe for the plucking, a subsidised savings scheme never really needed a "kickstart" gift from taxpayers. A more determined government would cut more waste of that sort.

But even one which is content to follow a more leisurely return to surplus cannot justify tax cuts as early as 2017, not coinciding with the next election year. Though Mr English says the prospect is conditional on fiscal and economic conditions at the time, his budgeted future allowance already provides for cuts that the Government says will be weighted to low- and middle-income earners.

There are better ways to help meet their needs than tax cuts at lower rates that everybody pays. The better way was in fact the best feature of yesterday's Budget: a tighter targeting of child support supplements for wage earners. Those on the lowest incomes will get more and those earning above $88,000 a year a little less. There is more room for savings in payments to large families on incomes at the upper end of the entitlement.

Beneficiaries with children will get an additional $25 a week from next April. By the Government's calculation, 190,000 children will be better off. That is a high proportion of the number in statistical measures of poverty. At the same time, the Budget is toughening rules of availability for work. Sole parents must be prepared to work part-time once their child is 3 (previously 5) and part-time will mean 20 hours a week, not 15. Their childcare grant will rise by a dollar an hour.

It is a Budget with few other highlights. It is based on continuing growth projections despite the slump in dairy prices and the deflationary risks facing some major world economies. It boasts that New Zealand will still be one of the first developed countries to return to surplus after the 2008 crisis. It should not be the first to squander a surplus in tax cuts our debt cannot justify.