Invisible tax cuts for now; no ‘ big bang’ on the horizon

The Budget has produced a handful of ‘‘ de facto’’ tax cuts by stealth, though the Government has held off any big bang cut to income tax rates for now.

Wider income tax cuts are not expected in the next couple of years, because that would work against the Reserve Bank’s efforts to raise interest rates to cool the economy and inflation.

And economists said people should not expect a ‘‘ big bang’’ income tax cut, with the Government likely to have headroom for cuts worth perhaps $ 500 million a year and not for a couple of years.

The biggest ‘‘ invisible’’ tax cut

in yesterday’s Budget was worth close to $ 500m from planned cuts to ACC levies, mainly on cars, from the middle of next year. ACC levies for cars are expected to come down by about $ 130 a year.

As well there is a ‘‘ temporary’’ reduction to duties and tariffs on building products, which is expected to slice about $ 3500 off the cost of building a home. The Government wants to see that become permanent.

In the same vein, business research and development is getting a boost worth about $ 58m over the next four years in tax breaks, but they were highly targeted. The Gov- ernment also announced the repeal of cheque duty, worth 5c a cheque.

‘‘ ACC levies are the invisible taxes that people pay, but they don’t actually see,’’ Deloitte chief executive Thomas Pippos said, and the move showed that when there were opportunities to make cuts, they were actually made.

As for income tax in the future, Finance Minister Bill English did not rule them out.

‘ Pippos expected a greater discussion about tax closer to the election, with cuts likely to be targeted at ‘‘ middle New Zealand’’.

‘‘ You wouldn’t expect widespread tax cuts to be prudent when surpluses [ are at present levels],’’ Pippos said, after the Government announced it expected a surplus of $ 372m in 2014/ 15 and rising beyond that.

ANZ chief economist Cameron Bagrie said the Government was sticking to its pattern of being responsible and paying down debt, but with a better financial picture it did have more choices.

However, the extra spending planned over the next few years would be ‘‘ noted’’ by the Reserve Bank, because that meant the Government was not leaning so heavily against monetary policy as it was a few months ago.

The Budget had delivered small changes, without a ‘‘ big economic punch’’.

‘‘ But if you get a lot of small things done well, it delivers a lot of economic muscle,’’ Bagrie said.

For example, removing duties and tariffs on building products would help make sure the Auckland housing market ‘‘ doesn’t derail us’’.

The Budget showed the economy is one of the fastest growing in the Western World, with growth forecasts rising to almost 4 per cent in the year to March 31, 2015.