Stealthy tax cuts for the rich?

The big announcement on Budget Day was a family package targeted at low-income earners. Photo: Lynn Grieveson

There were shades of red in the keystone of National’s Budget – a family package aimed at those on the lowest incomes. But is it a symptom of a Government really trying to help the bottom rung, or simply an election sweetener?

There were claims of election year bribes and “lolly scrambles” everywhere.

The Government’s Budget seemed to have something for everyone, but it was also fiscally restrained considering spending could have been much higher given the healthy sheen to the books.

At the centre of yesterday’s announcement was a family package, aimed squarely at those on lower incomes and living in expensive areas.

Of course the Budget was designed to appeal to votes, but National has been keen on social conservatism for some time.

They have been steadily digging into Labour territory, putting their mark on the 2015 Budget by introducing the first benefit rise beyond inflation in 30 years.

So it was not hugely surprising when the family package, which will cost $2 billion a year, was revealed.

It consists of four main parts: a boost to both Working For Families (WFF) and the Accommodation Supplement, a rise in the two bottom income tax thresholds, and an increase to the student Accommodation Benefit.

You can read about the finer details of the family package here.

Soon after details became public, both Labour and the Greens lambasted the policy as tax cuts by stealth that benefited the wealthy rather than the poor.

The parties’ social media teams were quickly into action, pointing out that under the tax threshold changes the more you earnt, the more you would save.

Of course this is true, but it ignores a few points.

Firstly, that $5 a week was arguably more important to low-income workers than $35 was to better-off families.

Secondly, the argument overlooked the family package - particularly the accommodation supplement.

This received a hefty increase, albeit one that was overdue with current rates pegged to 2005 rents.

It means that a family with two children living in Auckland will receive more than $100 extra a week, considering the supplement boost, WFF increases, and the tax threshold shift.

That’s significant, and will be tough to argue against with those in line to benefit.

The politicians respond

Labour leader Andrew Little described the Budget as a classic election year piece of work that was designed to get National across the line in September.

“We don’t support a tax plan that’s skewed to the wealthiest families, the top 20 percent, about 300,000 families do pretty darn well out of this, they’re not the one that need the biggest [increase].”

He raised the point that although WFF was being boosted, the abatement rate was rising and the threshold where the benefit began to erode was being lowered.

You can read more about how that works here.

Green Party co-leader James Shaw also argued the Budget was dressed up to support low and middle-income earners, but in reality was tax cuts in disguise for high earners.

He was in favour of increasing the tax thresholds in line with inflation, which would have cost about $900m, but this was a step too far.

Asked what he would have changed, Shaw said WFF should have been extended to those people not in work.

Cleaning up rivers and improving water quality, spending more on efficient transport, and housing were also priorities for the party.

“We could have done all of that, and still kept within roughly 30 percent of GDP so that’s one of the things that I think this Budget shows, just how far Steven Joyce’s small-state dream really extends.”

“One of the things about this National Government and Steven Joyce in particular is that he’s shown a real commitment to staying in Government beyond all ideology or sense of other purpose, this is yet another Budget that is designed to maintain their position in Government rather than solve problems the country faces.”

Unsurprisingly, National were dismissive of the criticism.

Finance Minister Steven Joyce said he was struggling to understand the Opposition’s numbers.

“It looked a bit flat, would be my view, I might be biased but it looked a bit flat. They also don’t seem to be able to count.”

Prime Minister Bill English addressed concerns that the boost to the Accommodation Supplement would simply be soaked up by landlords raising rents when they realised tenants had extra cash.

The way to stop this from happening was to build more houses, something he said the Government was doing.

“The key to housing has always been getting more houses built, that happens to be a difficult, challenging, and lengthy process but it’s happening…we’d like it to be faster but the construction sector is running pretty hard.

Just ask the families whether they’d rather have it or not have it, I don’t think families who are under real pressure with their rents regard themselves as some kind of bank account for their landlord.”

This approach may be true, at least in theory.

However, there are questions about whether the housing supply is growing fast enough, especially in Auckland.

The Independent Hearings Panel that oversaw the creation of the new Auckland Unitary Plan reported a housing shortage of 40,000 in 2016, which has been growing at a rate of more than 5,000 a year since then.

Just 7,400 houses were built in Auckland last year, while the Government’s Housing Accord with the Auckland Council has targeted annual housing supply growth of 13,000.

While the main parties debated the merits of a family package, it was perhaps ACT leader David Seymour who provided the quote of the day.

“There was once upon a time when the National Party campaigned against Working For Families, they said it was communism by stealth but it seems today Steve has the hammer and sickle right on his sleeve.”