KEY POINTS:
National has risked alienating people who have embraced KiwiSaver, as the party goes into the election with a tax-cut package that would leave more money in the pockets of most earners - but takes away two business tax breaks to pay for it.
The $16 billion package, delivered in the wake of projected Budget deficits this week, is to be funded by savings in reduced KiwiSaver rebates for employers and the abolition of a research and development tax credit.
The unveiling of National's tax plan yesterday represented a crucial moment in the election campaign and highlighted a clear difference between John Key's team and Labour.
Mr Key pledged tax cuts worth $47 a week to an earner on $50,000 a year through a combination of changes to personal tax thresholds and rates.
While he fell slightly short of expectation that the average earner would get $50 a week - the average income of $47,000 in fact gains $41.54 for those who are on Working for Families supplements - Mr Key emphasised there was "no free lunch" at a time of global economic turmoil.
"We are being realistic about what is affordable in the light of the mess that Labour will be leaving behind it," the National leader said.
"This is a prudent and responsible tax package - National will not undertake additional borrowing for tax cuts, or cut public services."
National attempted to put its tax cuts into a broader economic perspective yesterday after the international financial crisis and sudden deterioration of the Government's books forced economic issues to the fore of the election campaign.
The party's tax cuts are more attractive for middle and higher income earners than the package Labour has legislated for, but below-$40,000 families would be better off with Labour's package.
In dishing out bigger tax cuts overall than Labour, National has been open about its intention to pay for them by taking money out of KiwiSaver and business tax credits.
The KiwiSaver move represents a political risk because the scheme has grown to 800,000 members since Labour promoted it with generous incentives last year.
National's KiwiSaver changes would remove altogether a tax credit the Government currently pays to employers of up to $20 a week to help them pay a contribution into employees' saving accounts - saving $3 billion.
Instead of being forced to contribute 4 per cent of an employee's gross salary into KiwiSaver in future years, however, employers under National would have to give only 2 per cent.
This is where the sticking point could be for some voters, and Labour seized on the opportunity yesterday to blast National's plan.
Finance Minister Michael Cullen said of Mr Key: "He savages KiwiSaver by reducing the standard contribution ... but worse than that, promises to change the law so that, in effect, particularly for low and modest income earners, the employer will be able to make the employee pay for the employer's contribution.
"We are delighted by this package - it is about as badly designed as we could possibly have thought."
Internally, National is confident it can win the argument over KiwiSaver because it believes some savers will struggle to contribute 4 per cent of their income as economic times worsen, and because the extras the party is removing haven't actually taken effect yet.
Labour, meanwhile, will push hard on what it views as National's lack of commitment to future saving.
Dr Cullen said a family earning $45,000 a year with two children would be $1.92 better off under National's tax package but if they were in KiwiSaver "they're an awful lot worse off".
The surprise feature of National's plan is a new rebate for individual earners - a move aimed at those who have missed out on Working for Families payments under Labour.
While National will keep Working for Families intact, it will offer up to $15 a week extra for people who earn between $24,000 and $50,000 who do not receive a benefit, Working for Families or New Zealand Superannuation.
National's finance spokesman, Bill English, said there were 550,000 to 600,000 people in this category.
National also pulled back on a plan to borrow more for infrastructure.
The main points:
National is offering bigger tax cuts for most workers than Labour - although in some cases they are only slightly larger.
The cuts are heavily front-loaded in a bid to stimulate the economy. A big portion take effect on April 1 next year.
For most families earning under $40,000, Labour's overall tax cuts would actually be bigger.
Singles and couples without dependent children would also get a new tax rebate under National if they earn between $24,000 and $50,000.
The tax cuts would be paid for by taking some money away from KiwiSaver and canning a research and development tax credit for businesses.
Employers would have to contribute only 2 per cent of an employee's gross salary to KiwiSaver under National - compared with 4 per cent under Labour.
The tax credit of up to $20 a week paid to employers by the Government to help fund employer contributions to KiwiSaver would be removed.
