Tax relief for New Zealanders looks likely sooner rather than later, with Parliament due to go into urgency today and tomorrow to pass what is expected to be Finance Minister Michael Cullen's budget tax package.
Dr Cullen delivers his ninth budget to Parliament at 2pm.
Most likely, tax relief will come in on October 1 but economists said yesterday that a July 1 introduction was not out of the question given the poor polling by Labour.
More money in back pockets might lift public approval ratings ahead of this year's election.
Polson Higgs tax partner Michael Turner told the Otago Daily Times that if Dr Cullen was ‘‘truly desperate'' he could introduce retrospective legislation back to April 1 this year.
That was normally regarded as bad tax policy and smacked of the 1980s, when unfriendly tax policy was introduced retrospectively.
An October 1 introduction would put it half-way through the current tax year and July 1 would be the start of the Government's new financial year.
‘‘Anything earlier than April 1, 2009, shows desperation. It's unusual, difficult to administer and adds a whole lot of compliance costs,'' Mr Turner said.
An October 1 introduction would put an election at November 1 or November 8, to give taxpayers on fortnightly wages two pay cycles of more money in their back pockets.
A July 1 date could mean an election as early as late August, if poll numbers improve.
Indications this week have been that the first move by Dr Cullen will be to adjust the tax thresholds so fewer people will pay the 39% tax.
When the 39% rate was brought in, only 4% of New Zealanders earned $60,000 or more and paid the top rate. Now, 15% of wage and salary earners are included in the top rate.
Adjustments to all the tax rates are likely rather than across-theboard tax cuts, although Dr Cullen has indicated that those on low and fixed incomes will receive the most benefit.
Dr Cullen has consistently played down the budget as a ‘‘magic bullet'' to relieve pressure on household budgets from soaring fuel, food and energy costs. Oil hovered above $US129 ($NZ166) a barrel yesterday. Motorists were probably saved from more fuel price increases by the small rise in the value of the dollar.
Dr Cullen announced in 2005 that from the beginning of the 2008 tax year, tax thresholds would have inflation indexing built in. They were mocked at the time as ‘‘chewing gum'' tax cuts and last year Dr Cullen axed them and instead made Kiwi-Saver more attractive.
By cutting the tax rate at the lower end of the scale, the policy would meet his self-set test of fairness and equity.
The Finance Minister has already ruled out the creation of a tax-free income bracket and cuts to GST.
The December fiscal update set the new operating spending allowance for the budget at $2 billion. Dr Cullen has said that tax cuts might not be too far above $1.5 billion. It remains to be seen how much relief can be provided to workers from $1.5 billion to $2 billion.
