More secure future under Budget 2005
Finance Minister Michael Cullen delivered his sixth budget on 19 May. Budget 2005 delivers large increases in social spending, business tax relief of $1.4 billion over the next four years, a package to encourage savings, and plans to protect taxpayers against inflation by increasing personal income tax thresholds by 6 per cent every three years from 2008. Michael Cullen told Parliament the budget continues the government's commitment to maintaining a strong fiscal stance, supporting economic growth and building a fair and inclusive society. He outlined large increases in spending to enhance security through health spending - an extra $4.09 billion over four years - extra Police staff, a long-term defence spending plan, funding for Working for Families and the rates rebates scheme.

Budget package encourages savings
The Securing Your Future package in Budget 2005 will make it easier for people to save, and will help them into their first home. A key feature is the KiwiSaver workplace savings accounts to help people save for their retirement. The government will contribute $1000 to each account and subsidise fund management fees. First home buyers will be able to withdraw their funds for a deposit on a house. It will be a voluntary scheme which enables people to put 4 or 8 per cent of their gross salary automatically into a savings fund. Savers will have personalised accounts that can shift with their jobs. New employees will be automatically enrolled but can opt out within three weeks. Existing employees, the self-employed and beneficiaries will be able to opt in. First home buyers who have been members of KiwiSaver for three years will be eligible for a one-off deposit subsidy of $1000 for each year of membership, to a maximum of $5000.

A hand up to home ownership
Michael Cullen said more people will be able to own their own homes as a result of Budget 2005 because of the extension of Mortgage Insurance Scheme, the housing deposit subsidy available through KiwiSaver, and a home ownership education programme. When fully in place, it is expected to help 5000 to 8000 first home buyers a year. While it does not exclude low income households, it is aimed primarily at those earning above $40,000 a year, as borrowers must be able to service a mortgage. MIS helps people who can support a mortgage but can raise little or no deposit. The scheme enables people to borrow most or all of the cost of a house with little or no deposit. These changes will take effect in July 2005 and are expected to cost $22 million a year from 2008-09.

Income tax inflation indexed from 1 April 2008
Personal tax rate thresholds will be raised 6.12 per cent on 1 April 2008 under a Budget 2005 commitment to inflation proof incomes. The decision will cost the government an estimated $68 million in 2007-08 and $360 million in 2008-09. This means that in future taxpayers will pay more tax only if their incomes rise in real terms and the adjustments will take place every three years beginning on 1 April, 2008. To provide greater certainty and administrative ease, we have decided to raise the thresholds by a uniform 2 per cent each year - the mid-point of the Reserve Bank's price stability target range. Compounded over three years, this produces an increase of 6.12 per cent. As a result of the changes, taxpayers who earn more than $10,081 will pay $35 less tax each year. Those earning more than $40,324 will pay $314 less and those earning more than $63,672 will pay $534 less. Legislation to implement the indexation regime will be introduced next year.

Govt responds to flood damage
Prime Minister Helen Clark travels to the Bay of Plenty region today to inspect the extensive damage caused by torrential rains this week. Civil Defence Minister George Hawkins visited the area twice this week to get first-hand accounts of the flooding which destroyed homes, roads and bridges, and swamped farms. A civil defence emergency was declared on Wednesday. The government has instructed Taskforce Green to be activated and to provide assistance in the flood zone. Local councils will receive government support to cover evacuation, accommodation and food costs for those forced from their homes. Work and Income has put in extra people to help with the recovery plan. Helen Clark said the government would be contributing to mayoral relief funds and would discuss ongoing assistance at the weekly Cabinet meeting on Monday.