New Zealand Defers Planned Tax Cuts to Meet Debt Repayment Goalby
New Zealand is deferring planned income tax cuts in order to reach its debt repayment target and meet demand for new spending, Finance Minister Bill English said.
“With continuing tight fiscal conditions, we don’t currently have an explicit provision for tax reduction in the fiscal forecasts,” English said in a speech Thursday in Wellington. “At this point, we’ve prioritized additional debt repayment over setting aside money in Budget 2017 for tax cuts.”
Prime Minister John Key’s government won a third term in 2014 pledging to return the budget to surplus and promising income tax cuts that would take effect after the 2017 general election. While the government achieved a surplus last year, low inflation and slower economic growth are curbing tax revenue while record immigration is increasing pressure on public services and infrastructure, requiring additional spending, English said.
The government has a target of reducing its debt to 20 percent of gross domestic product by 2020 from about 25 percent this year. Last year, it said it would allow NZ$1 billion ($680 million) for new spending in the 2016 budget and NZ$2.5 billion in 2017, which gave it scope to announce tax cuts.
Instead, it will bring forward some of the 2017 allowance into this year’s budget, due for delivery May 26, English said today. “Another portion of spending previously earmarked for Budget 2017 has been used to reduce government debt, to help reach the 2020 debt target,” he said.
Tax reductions remain dependent on fiscal and economic conditions, English said. “We are still committed to cutting personal taxes over time, and will consider these –- either in Budget 2017 or after –- as and when the fiscal situation improves.”