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NZ Budget – shaky times ahead
Sunday, 20 July 2008
It was budget time in New Zealand in May as well, with newspapers reporting that shaky times are ahead, says Sandy Nelson of Auckland member firm Walker Wayland Auckland.“The New Zealand prime minister announced a cut in income taxes, the first tax cuts in nine years, and a significant increase in government spending driving the government’s budget into deficit for the first time since 2000,” says Sandy.
“Commentators were surprised at the larger than expected tax cuts, NZ$10.6 billion in tax cuts over four years from October 1 2008, and the increase in government spending and noted that as a result interest rates would stay higher for longer.
“Also, inflation pressures from a tight labour market, strong spending and high commodity prices means that the NZ economy will grow by only 1.5 per cent in 2008-09, which is about half its average growth rate for the past 10 years. Overall, the main brake on the economy continues to be monetary policy and the impact of global financial conditions,” says Sandy.
Looking at how the NZ Budget compares with Australian Budget08, the NZ tax cuts have not reduced the widening gap with personal tax rates in Australia.
“Making direct comparisons is always difficult as NZ and Australia do have different tax systems,” says Sandy.
“However, effective personal income tax rates paid by Australians are substantially lower than those paid by New Zealanders and the NZ Budget has done little to change that,” says Sandy.
“In fact, the gap might get more pronounced as the new Australian Government intends to substantially reduce personal tax rates further by 2014,” he adds.
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