14 Oct 2016

Spend surplus on social support, not tax cuts, govt told

5:58 am on 14 October 2016

The government is being urged to loosen the purse strings and fix the country's growing social ills rather than 'bribe' people with tax cuts.

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The government surplus has grown to $1.8 billion, well ahead of the $700 million surplus Finance Minister Bill English announced in the Budget in May. Photo: RNZ/Elliott Childs

The budget surplus more than quadrupled to $1.8 billion in the year to June, thanks to the growing economy.

Finance Minister Bill English reiterated that reducing debt remained his priority, but said tax cuts were still on the table.

The focus would shift from managing deficits to managing surpluses, Mr English said.

"Achieving reduced debt, infrastructure investment, reduced taxes for lower and middle income families - the key to that is expenditure control and a growing economy."

Having surpluses would not mean a change to the government's approach to fiscal management, he said.

"It just means we have a few choices we didn't have in the past."

Salvation Army chief policy analyst Alan Johnson said Mr English should use the surplus to invest back into the community.

"The government has left, over the last eight years or so, a social deficit, which we are now seeing literally on the streets of Auckland and elsewhere. And a deficit elsewhere in things like education and health."

Bill English at a social housing announcement in Northcote

Bill English says tax cuts are on the table. Photo: RNZ / Claire Eastham-Farrelly

"And it's not accounted for that and it doesn't appear to be interested in bridging that deficit," Mr Johnson said.

Council of Trade Unions economist Bill Rosenberg agreed.

A struggling health sector, unacceptable levels of child poverty and rising homelessness meant the government should focus on New Zealanders, not debt levels or tax cuts, he said.

"This govt has a record of putting off the needs that New Zealand has for the long term," Mr Rosenberg said.

"You can't put off dealing with child poverty indefinitely. You can't put off dealing with a struggling health system indefinitely. That's what the government needs to focus on."

Business New Zealand backs tax cuts

But Mr English's approach has the backing of Business New Zealand

Business New Zealand chief executive Kirk Hope said the Finance Minister's focus on strengthening the government's financial position amid an uncertain global environment was the correct and prudent thing to do.

With the government's books in better shape, tax cuts were a realistic option, Mr Hope said.

"We'd certainly welcome corporate tax cuts."

Business New Zealand Chief Executive, Kirk Hope at its offices in Wellington

Kirk Hope said he would welcome corporate tax cuts. Photo: RNZ/Teresa Cowie

"Whether there's room at this point in time for it - personal income tax cuts - is a greater question. But it [the surplus] certainly gives the government a lot more options than they might otherwise have had."

While Mr English has emphasised debt remained his priority, Prime Minister John Key has floated the possibility of tax cuts next year - an election year.

Mr Rosenberg said he favoured a more targeted approach, if the government was committed to tax cuts.

Raising benefit levels and Working for Family payments, which have fallen in real terms by a quarter since 2010, would be a better use of the money, he said.

"That [Working for Families] really needs to be restored and that would make a huge difference to many working families."

"But we also need to look at people on welfare benefits, which is the centre of where child poverty stands," Mr Rosenberg said.

Mr Johnson said voters could face a stark choice in the 2017 election, "between whether we want an effective government that's delivering good quality public services to people who need them, or whether we simply want another $20 to $30 in our pockets".

"Iideally I would hope that New Zealanders see past that bribe and say look, it's about the sort of country we create, with what we can do with our government and our taxes," Mr Johnson said.

The government may reveal more about next year's tax and spending plans in early December, when Mr English updates the economic and fiscal forecasts.

Economists are picking the faster growing economy will translate into bigger surpluses in coming years.

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