WIDE CHANGES—MORE AHEAD

Press, 9 November 1984, Page 1

WIDE CHANGES—MORE AHEAD

Budget helps families., bits farmers hard

By

MICHAEL HANNAH

in Wellington

Revenue measures designed to cut the Government’s deficit and reduce pressure on inflation and interest rates dominate the fourth Labour Government’s first Budget, presented last evening by the Minister of Finance, Mr Douglas.

In a break from the pattern of previous Budgets, Mr Douglas’s first Budget allows a bigger increase in revenue than in State spending. The impact will be widespread, raising the price of petrol 2.5 c a litre, bulk electricity 25 per cent, coal 35 per cent, road-user charges an average of 46 per cent, liquor by various amounts, cigarettes 16c a packet of 20, milk 4c or 5c a pint, and prescription charges and motor-licensing fees 20 per cent.

The standard income tax rate is also raised from 31.5 per cent to 33 per cent, company cars, loans and other fringe benefits will be taxed at the rate of 45 per cent on the employer, the tax exemption on new life insurance and superannuation schemes is removed and the tax rebate on firsthome mortgages abolished on houses purchased from last evening. Subsidies for agriculture, forestry, and electricity concessions are removed, although a 10 per cent differential is set between North Island and South Island electricity prices. On the other , side of the ledger, substantial increases in family-related benefits were announced with a new Family Care, non-taxable benefit of $lO a week a child. Income-related social benefits, including National Superannuation and war pensions, are increased. The general medical services benefit for children is doubled to $9.50, increases in Housing Corporation spending on rental units and loans were announced, and the prime lending rate on Housing Corporation and Maori Affairs loans is reduced to 9 per cent. Education spending is restructured to allow more remedial reading teachers, more kindergarten and secondary school teachers, increases in tertiary grants, and the renewal of funds to the Four Avenues School in Christchurch.

Tourism grants are extended, and export market development incentives extended another year. Acknowledging that people would be disadvantaged by the Budget, Mr Douglas promised a flattening of the personal income tax scales for next year’s Budget, effective from April

1, 1986, along with a substantial move to indirect tax through a Goods and Services Tax. The Goods and Services Tax is given extensive publicity in the Budget material, and a White Paper, including a draft bill, is promised, to be open for S' die submission before the is introduced in 1986.

Mr Douglas said the Budget was aimed at a “more efficient economy and a more just society.” Its immediate effects, however, would be to dampen the economy, although investment and jobs should increase in export-related industries. The effect on the Public Accounts was a reduction in the internal deficit, from 9 per cent of gross domestic product to 7 per cent of G.D.P. Government spending was forecast to rise $1306 million or 9.2 per cent to $15,556M and revenue would rise $1646M or a hefty 14.8 per cent, to $12,795M. ' -A-

Mr Douglas said in his Budget text that the decisions could not be expected to produce an immediate improvement in the shortterm economic outlook inherited by the Government. “However, taken together, the measures announced so far will act to speed recovery,” he said. He asked that the Budget not be seen in isolation, but as one of a series of moves to bring about sustainable economic recovery, increased employment and a more just society. “Comprehensive economic and social reform will be the hallmark of the fourth Labour Government,” he said.

In detail, the measures will increase the road-user component of the motor spirits duty and of the sales taxes on C.N.G. and L.P.G. 39 per cent from midnight last night. This will mean petrol will rise 2.5 c a litre. The sales tax on C.N.G. will rise 73c a gigajoule, and for L.P.G. rise 1.93 c a litre.

The bulk electricity tariff will rise 25 per cent from April 1, 1985, and the South Island electricity concession of 25 per cent to industrial users will be abolished from March 31, 1987, although a 10 per cent differential between North and South Island power prices will be

maintained from April 1, 1985.

Prices charged by the State Coal Mines for nonexport sales will rise an average of 35 per cent. Road-user charges, levied from heavy trucks and buses, will rise an average of 46 per cent from February 1, 1985.

Taxes on liquor rose various amounts from midnight last night. The effects will be to raise the price of a jug or a 745 ml bottle of standard-strength beer about 1c; a nip of gin or whisky about 4.5 c; a nip of rum or brandy, about 6c; a bottle of table wine, about 45c; and a bottle of fortified wine, about 57c. However, the tax on lowstrength beer will fall about 3c on a “pint” bottle. Excise duty on cigarettes rose 26 per cent from midnight, resulting in a rise of 16c in the tax on a packet of cigarettes. The milk subsidy will be removed early in 1985, resulting in a likely price rise of about 4c or 5c a bottle, according to Mr Douglas, although the exact size and date of the increase will be announced by the Minister of Agriculture after consultation with the Milk Board.

. Increases in health spending will allow the general medical services benefit for children to rise from $4.75 to $9.50 for a normal consultation, where the doctor agrees to limit the total fee for such consultations.

More public health field staff will be engaged to work in areas of pressing health needs and a programme to. assist local initiatives in health development will also be established.

To meet part of the costs of these measures, a flat charge of $1 will be applied on all prescription items, except contraceptives, and those items for which the full price is met by patients. There will be exemptions for children under 16, beneficiaries, and the chronically ill.

Motor-vehicle registration, annual licence and change of ownership fees for the licensing year beginning July 1, 1985, will rise 20 per cent. The standard income tax rate will rise from 31.5 per cent to 33 per cent, for

those earning between $6OOO and $25,000 a year. Higher penalties on late payment of income tax are announced, involving a compounding penalty of 10 per cent, for each six-month period. Fringe benefits, specifically employer-provided cars, and low-interest loans, and any free, subsidised or discounted goods and services, will be taxed from April 1,1985, at a rate of 45 per cent. The tax will be paid quarterly by the emaer, and will not be taxictible for income-tax purposes. Mr Douglas provided estimates of extra revenue, savings or costs from most measures, although he conceded that some, such as the taxing of fringe benefits, were difficult to estimate.

The over-all effect, however, was a fiscal saving of $llOO million in 1985-86, and $lBOO million in 1986-87, the latter figure equivalent to two-thirds of this year’s deficit, he said.