John Armstrong: Few votes for National in extra $1.20 a week

The Government needs to demonstrate it really wants to stem tax avoidance. Photo / NZ Herald

Tomorrow's Budget is about three things - tax, tax and tax.

Most people will pass judgment according to how much money will be left in their pockets once price rises flowing from the increase in GST have eaten into the compensating cuts in income tax.

If the advance speculation on likely changes in tax rates turns out to be accurate, National will be in big trouble with lower-to-middle-income voters.

The smile on Bill English's face in Parliament yesterday suggested otherwise. The package may be more generous to people in those income bands than the pundits have predicted.

Everything is fine and dandy for those at the top end of the income scale. They can buy their wheelbarrows now to carry away the extra cash coming their way.

Those at the bottom will have to make do with a few dollars extra a week. But they are not where National looks for votes.

National's dilemma centres on those earning between $48,000 and $70,000. They pay the 33c rate on income above $48,000. That rate is not expected to be among those which will be cut. However, those wage and salary earners will be paying more in GST. Their net gain could be as low as $1.20 a week.

They will look askance at the booty being returned to taxpayers earning more than $70,000. The latter will benefit from the 38c rate above that level being chopped to33c.

All along the Prime Minister has said the tax package must meet the tests of fairness, equity and sustainability.

Around 400,000 households have incomes in the $48,000 to $70,000 band. Their net gain would be paltry - and, whether fair or not, definitely politically unsustainable.

It has to be assumed that the Government is going to be more generous to those lower to middle-income earners than English and John Key have let on.

The obstacle is cost. Lifting the threshold at which the 33c rate kicks in from $48,000 to $60,000 would alone cost close to $1 billion.

But, as Helen Clark used to say, it is wiser to under-promise and over-deliver.

When it comes to fairness, Key and English also need to find some way of silencing Labour's "tax cuts for the rich" mantra.

Shutting off tax advantages for rental properties, changing rules on depreciation and closing other tax loopholes will go some way towards doing that.

But the Government needs to demonstrate it really wants to stem tax avoidance. Some kind of inquiry or task force would send the right message.

Key and English are urging people to view the tax package "in totality' and see it as a major element of the Government's strategy for faster growth. That they are trying to turn the tax argument into an economic one might suggest that National is vulnerable politically.

If they cannot win the political argument, the Budget risks going down like the proverbial lead balloon - and National's buoyant poll rating with it.