Salient

No, Dr Cullen…well, maybe yes

By Matthew Proctor | 26 May, 2008

On 16 May, Finance Minister Michael Cullen declared that lower interest rates would be of greater help to families than tax cuts. This column was going to be called “No, Dr Cullen, you’re wrong”. I stand by that; tax cuts mean more cash in pocket than a slight reduction in interest rates. While many New Zealanders are heavily burdened by debt, Cullen’s explanation that he couldn’t possibly provide tax relief equal to a two per cent cut in interest rates for someone with a $400,000 mortgage is a little misleading. Two percentage points is an awfully large cut (which is not really the kind of thing the Finance Minister can promise), and I somehow doubt $400,000 is an average mortgage, even with housing prices the way they are.

The Dominion Post (19 May) provided a rather convincing rebuttal. 42% of respondents to a Neilson Media Research survey favoured tax cuts, with only 23% saying lower interest rates would make the biggest difference. This tells me quite clearly “New Zealand families do not think lower interest rates would be of more use.”

However. This column was intended to be written to a background of measly tax cuts, delivered in the Budget on 22 May. But the Budget actually provides pretty fuckin’ decent tax cuts. The lowest tax rate is reduced from 15% to 12.5%. That includes you, oh poor full-time studying, part-time working student.

In addition, the threshold for 21% has been increased from $9500 (per year) to $20,000, the 33% threshold has been increased from $38,000 to $42,500, and the 39% threshold from $60,000 to $80,000. These are all pretty sweet cuts.

A Stuff.co.nz survey on the night of 22 May is almost cause for concern. 86% of respondents declared that “Michael Cullen’s tax cuts did not live up to their expectations.” Obviously most of these people have not looked at exactly what the cuts are. Because these cuts go well beyond my expectations of almost nothing.

Political Editor Jackson Wood provides a concise summary of this year’s budget: “They’ve changed the tax brackets, and done some other shit.” And truth be told, it’s pretty hard to complain with.