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Cullen Drops A Hint Over Tax Cuts Package

Fuseworks Media
Fuseworks Media

Political jousting and more hints over tax cuts continued in Parliament today ahead of Thursday's budget.

Finance Minister Cullen has ruled out a number of options for his tax cuts package, but today suggested there could be an across the board lift in the thresholds at which people pay more tax.

Answering questions from independent MP Gordon Copeland about why he had not cuts personal taxes over the last nine years, Dr Cullen said he had good news for the MP.

"On Thursday I will be announcing such cuts. I look forward to his support for those which are consistent with the views he has expressed over many years," Dr Cullen said.

Mr Copeland, a former United Future MP, has been a strong supporter of the indexation of thresholds.

He and many others argue that far too many people are being dragged into higher tax rates as their incomes grow.

Dr Cullen announced in 2005 that from the beginning of the 2008 tax year tax thresholds would have inflation indexing built in.

They were mocked as the "chewing gum" tax cuts and last year Dr Cullen axed them and instead made KiwiSaver more attractive.

Dr Cullen's comments today suggest that he could be reintroducing some form of indexation to the thresholds as part of his package, though it is also possible that he was just teasing Mr Copeland.

Most speculation around Parliament is that Dr Cullen will cut the tax rate at the lower end of the scale as the centrepiece of the tax cuts.

This would meet his self-set test of fairness and equity, as it would deliver something to everyone -- even if it is very expensive.

Revenue would fall by around $1 billion for every $10 a week put into taxpayers pockets.

Dr Cullen has already ruled out the creation of a tax free income bracket and cuts to GST.

Yesterday he indicated there would be less money to deliver cuts but they were less likely to be inflationary given tougher economic times.

He also ruled out a lump sum dividend payment saying there was "no basis" for speculation about one.

Today an International Monetary Fund report (IMF) warned that the Government needed to keep inflationary pressures in check and restrain government spending to help reduce the harmful effects of the international credit crunch.

The IMF, in its annual assessment of the New Zealand economy, said the Reserve Bank's decision to raise rates last year was "appropriate" and helped moderate house price inflation and slow rapidly appreciating house and share prices.

The IMF also backed government plans to gradually reduce a large fiscal surplus, but cautioned that those steps should occur only once inflationary pressures eased.

Dr Cullen said the IMF's warnings were for the Opposition rather than the Government going by National Leader John Key's statements about tax cuts in the past 24 hours.

He said the budget fit "reasonably" well within the IMF's expectations.

"But as I said, we've been trying to balance a range of expectations and not taking up the invitation of one or two of you (in the media) to act totally irresponsibly as the sort of mechanism leading towards the election."

In Parliament both Mr Key and Deputy Leader Bill English both attacked the Government in the House over tax cuts.

Mr English mocked Dr Cullen for his dumping of the chewing gum taxes.

Mr English said Dr Cullen was planning to legislate immediately to pass tax cut legislation after the budget because the public no longer trusted him to stick to his promises on tax cuts.

Dr Cullen retorted that unlike Mr English he could stick with a promise for more than 24 hours and he had delivered tax cuts to families, savers and business as promised.

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