Big earners in for bad news today?

High income earners, or those hiding their income through trusts or a mixed use of assets, could be in the firing line when Finance Minister Bill English releases his Budget 2012 this afternoon.

With the Government having already released changes to welfare, education and health spending, the so-called "zero Budget" will need to find some extra revenue with which to balance its accounts.

The Government has pledged to return to surplus by the 2014-15 year, although Prime Minister John Key has hinted the target might be moved out a year or more.

The Government has already pledged to cut $1 billion out of the public service and will now need to look wider and deeper to find money to fund the ongoing needs of an ageing population's health needs and the relatively high number of jobless in this country.

Polson Higgs partner Michael Turner said alcohol and tobacco were obvious targets for a tax increase, but he expected to see some "closing loopholes" announcements which might go further than that.

"One we may see in this category is for mixed use of assets - something Inland Revenue has been discussing - being holiday homes, pleasure craft and aeroplanes where there is both business and private use, particularly where IRD is concerned at the level of tax being claimed."

There could also be some changes where the IRD perceived people were "playing the system" with thresholds or election in asset use, he said.

By getting major spending allocations out of the way in the lead-up to the Budget today, Mr English has cleared the way for some creative work around growing the New Zealand tax base.

Opposition political parties calling for the introduction of a capital gains tax are almost sure to be ignored by Mr English.

Yesterday, the Living Wage campaign was launched in Auckland. Initiated by the Service and Food Workers' Union, the campaign will be used as a counter to any perceived cuts to the standard of living for those on the minimum wage.

First Union general secretary Robert Reid said $13.50 might be the new minimum wage but it was completely impossible for a family to live on two full-time minimum wage incomes, let alone if one parent was out of the paid workforce looking after children.

With a growing recognition in New Zealand that to avoid tumbling into a credit crisis similar to that in Europe, borrowing and spending by the Government needs to be curtailed, Mr English has left a very small target for Labour and the Greens to focus their criticism on.

Poverty will be one area both parties can focus on today because Mr English is almost certain not to make any adjustments to Working for Families subsidies - except perhaps to cut the abatement levels for high income earners - or lift benefit payments.

The Government has signalled a further squeeze on spending but unlike the harsh European austerity measures, a reallocation of spending priorities in existing programmes is more likely than deep spending cuts.

Mr English said yesterday the theme of the Budget was confidence in uncertain times.

The Budget would be a sensible one, not an austerity Budget, which would show steps to stop the Government's debt rising while improving New Zealand's longer-term growth prospects.

Rating agency Standard and Poor's said the Budget was unlikely to put any immediate pressure on New Zealand's ratings unless there was a sustained delay in returning the accounts to surplus.

- dene.mackenzie@odt.co.nz

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