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Cullen Says Budget Will Provide Economic Tonic

Contributor:
Fuseworks Media
Fuseworks Media

Next week's budget will deliver a mix of mild
tax relief with investment and social spending as a tonic for the
economic chills, Finance Minister Michael Cullen said today.

Dr Cullen said his ninth budget would deliver a "real response" to the economic situation.

He once again down played his tax package, saying large cuts would lead to cuts in services or higher interest rates.

Dr Cullen told the Canterbury Manufacturers Association in a
pre-budget speech that there would be three broad elements in next
Thursday's budget:

* Tax relief that will be fair as it can be to all workers;

* Strong investment in infrastructure, public services and support; and

* A plan for the future to help New Zealand grow when economic conditions improve.

Dr Cullen gave little detail about what to expect on May 22
except to say it would provide a response to the current economic
climate.

He warned that large tax cuts were not possible.

"It is true that tax cuts cannot be huge, not only because a
large tax cuts programme would be irresponsible fiscally, but also
because the budget will make it clear that revenue is down on
forecasts," Dr Cullen said.

"They will be as fair as they can be to all workers."

Dr Cullen said there would not be a cut back in investments or funding in response to weakness in the economy.

Health, education and social services spending would all increase, as would funding for infrastructure.

"This year we will see a large injection in capital spending, to
keep building the public infrastructure our communities need," Dr
Cullen said.

Dr Cullen did mention one specific spending announcement in the speech.

The Canterbury region would get $33.5 million over four years
and indicative spending of $244 million over 10 years to implement
regional transport projects.

Canterbury would be required to fund its share from local
resources or from a regional fuel tax most likely to phased in from
2010.

Dr Cullen said besides "fighting the harsh edges of this economic cycle" the budget would have to look to the future.

Past governments had slashed and burned when the economy took a
downward turn, leaving New Zealand weak to benefit when the economy
improved again.

Dr Cullen said infrastructure spending such as the purchase of
Toll Rail and the broadband package to be announced in the budget
showed the Government was intent on investing for the future.

The budget would also include more money for skills training as well as the previously announced increase in science funding.

Dr Cullen repeatedly said the Government understood that many were feeling the pain from the financial pinch.

Some of these problems, such as oil prices and the international credit crunch, were out of the Government's hands.

"Despite the global nature of our challenges, my Cabinet
colleagues and I have over the past months analysed the situation
thoroughly.

"And in so doing, the Labour-led Government has rejected the
notion that as a nation New Zealand is powerless in the current
climate."

The budget would provide a "real response" to the current
economic situation, this would not involve "gimmicks" such as cutting
GST on essential items.

"It will certainly not be sold as a silver bullet economic
rescue package, because it is not possible to create one," Dr Cullen
said.

Speaking to journalists afterwards, Dr Cullen said people had
to be realistic about what tax cuts were possible and affordable in the
long term.

Dr Cullen pointed out that to many of those with mortgages,
interest rate cuts were more important than tax relief or cost
increases.

He said a 2 percent cut in interest rates was worth $150 or $160 a week for a household with a $400,000 mortgage.

Dr Cullen said he had to keep an eye on the future and
maintaining revenue and he would be announcing a cut in the long term
spending programme.

"It can't be cut much further than we are doing without risking
quite seriously the ability to invest in social services and in other
areas."

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