Income-tax cut and family benefit bonus to cost $225M

Press, 29 October 1977, Page 2

Income-tax cut and family benefit bonus to cost $225M

■PA ' Wellington Individual income tax will be reduced by 5 per cent without limit from February 1 next and there will be a special supplementary family benefit of $25 per child payable on November 29. These were two of the

highlights in a mini-budget I announced by the Prime; Minister and Minister of Finance (Mr Muldoon) in Parliament yesterday. The economic package, which had been widely tipped in recent days, was announced to Parliament through a Ministerial statement.

In his introduction, Mr Muldoon said the Government’s economic strategy had been the adjustment of the level of economic activity to the maximum sustainable, considering the realities of the country’s trading situation. “Switching resources between sectors to achieve further progress is a slow process and required careful management,” Mr Muldoon said. “The Government is determined to ensure that the levels of unemployment of people and resources do not rise above the minimum that is consistent with the need to shift resources into those areas that have pirority in the attainment of our national economic goals.”

The tax reduction on weekly P.A.Y.E. rates will be calculated as a percentage reduction in tax before the subtraction of tax rebates, including the personal rebate.

On a weekly income of $125 ($6500 a year) the tax will drop by $1.74 a week. On a weekly income of $19231 ($lO,OOO a year) the reduction will be $3.32 a week.

Over a full year the tax reduction will amount to more than S2OOM.

The special supplementary family benefit of $25 per child will be in addition to the no-mal benefit payable on November 29. The cost of the special supplementary benefit will be S2SM. The changes in the HirePurchase Regulations will not affect the present restrictions on colour television sets, new and used cars and motor-cycles but will apply to "other consumer goods” such as black and white television sets, “white ware,” and other household appliances. Mr Muldoon announced a series of measures designed to boost exports including further export incentives, access to working and equity capital in the “preexport” situation, a liberalisation in market development assistance and the introduction of a "qualifying services” taxation incentive. The new measure covers the export of New Zealand “know-how” and provides for an assessable income deduction of 5 per cent of the gross fees provided the net fees are remitted to New Zealand through the banking system. The increased exports incentive scheme provides assistance in the form of a c. duction from assessable income equivalent to 25 per cent of the f.o.b. value of the increase in a company’s qualifying export sales. Next year will be designated “Export Year” and the Government will ask the Export-Import Corporation to consider opening additional trade centres on the West Coast of the United States and in South-East Asia, both considered by the Government as high priority market areas.

The package includes measures to stimulate the house building industry. At the end of October about S64M will be released for housing loans by savings banks by a reduction in the Government’s security ratios.

I Additionally the Post Office Savings Bank will be authorised to lend an amount equal to 2 per cent of total deposits on second and subsequent mortgages for housing purposes. This proposal will make available an additional SI9M for housing purposes with a further $5.6M from the personal loan scheme.

As a hedge against increasing unemployment the Government will institute special training programmes. The courses will be either general pre-employment courses in a range of skills of training for special skilled or semi=skilled occupations. The proposed courses will vary in length from four weeks to 20 weeks.

A special farm employment scheme will provide subsidised employment for unemployed persons. The subsidy will be one-third of the ruling rate for farm workers in the area concerned with a minimum subsidy of $4O a week and a maximum of $5O. The scheme will come into effect immediately. In making placements under the scheme priority will be given to farmers needing labour for development programmes. The fares of unemployed workers travelling to an agreed location for interview will be met by the Department of Labour.

To provide jobs for university students over the summer vacation and to lessen the extent with which they compete with school-

leavers for job opportunities, a student community service programme will be in= stituted. The programme will give students temporary work involving community service. It will last for a maximum of three months this summer.

The Maori trade training scheme will be expanded and a pilot scheme introduced in Auckland for full-time pre-apprenticeship training of young people who would otherwise be unemployed. Places will be provided for a total of 56 trainees.

An additional 73 employment officers will be appointed to the Labour Department and spread among the 22 departmental districts. The Department of Education will appoint an additional 10 vocational counsellors. The extra cost of these measures will be $455,000 in a full year. The statement yesterday said that the easing of monetary conditions were consistent with the “general aim of mild stimulation of the domestic economy.”

To avoid a too-severe contraction of economic activity as a result of effort to reduce stock levels quickly it had been decided that the Reserve Bank would direct trading banks to give priority in credit to clients in difficulty in financing present stock levels.

The reserve asset ratio policy would also be eased by allowing the banks some additional margin of “free reserves.”-

To help ease the pressure! on interest rates, Government stock rates for one and two year stock would be reduced immediately. At the same time small upward movements to Treasury bill rates would produce a most satisfactory rate structure for Government securities and encourage more widespread use of Treasury bills as a market instrument. The Reserve Bank would give immediate consideration to reducing its lending rate for borrowing by the trading banks for reserve assets ratio purposes from its present level of 12 per cent.

New Government security rates are, with old rates in brackets: one year, 84 per cent (9| per cent); two year, 9 per cent (10); five-year and 10-year rates are unchanged at 10 per cent.

Life insurance offices’ obligation to invest 20 per cent of assets in Government stock is changed to require only 19 per cent to be so invested.

The trading banks are allowed to invest in local authority stock and such holdings will not comprise part of their reserve assets. Life insurance offices will be allowed to meet their ratio requirements by acquiring local authority securities on the secondary market as well as new issues.

A compensatory deposit scheme will be introduced in March under which the Reserve Bank would re-deposit with the trading banks the large flow of net funds

to the Government during the month of March.

Such deposits would be repaid by the banks over the Marc h-April-May period, thus smoothing the big yearly fluctuations at this time, and easing pressure on short-term interest rates. Farm incomes were expected to remain at sufficient levels to sustain investment and growth in productive capacity over the next 12 months, though at a lower level than the previous year. The Government saw no immediate need for additional measures of farm in= come support. It would ensure that the momentum of development through the livestock incentive scheme was maintained. An additional SIOM would go to the Rural Banking and Finance Corporation for development lending and livestock incentive suspensory loans and a further SIOM would be provided to re-finance borrowings from other sources byfarmers engaged in genuine development. The rate would be 91 per cent. T'h e rural export suspensory loan scheme will be extended to include capital spending by the dairy industry to manufacture new export products. It noted a diversification into products suited to new markets was needed and the aid would extend to whey products, new cheeses and instant products. .