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National Holds Off On Tax Policy

Fuseworks Media
Fuseworks Media

National leader John Key says his party is not announcing its tax policy yet -- but if it follows the outline of its 2005 policy people on the average wage could expect tax cuts of about $40 a week.

Finance Minister Michael Cullen is set to deliver his ninth budget on Thursday when the latest fiscal forecasts would be revealed.

Today 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 dividend saying there was "no basis" for speculation about one.

A media report today said National would cut "north of $50" for people on average incomes.

Dr Cullen said to put a figure on cuts was reckless without knowing the forecasts "it's just plucked out of the air .... on the grounds I presume that it was bigger than anything the government might be putting on the table," he told reporters this afternoon.

Mr Key told NZPA that his comments were in relation to what he thought the public would feel was a meaningful tax cut.

"I didn't detail what would be in National's tax package in 2008."

However he said the 2005 policy ranged from cuts of $10 up to $92 a week; "with someone on the average wage getting approximately $40 a week.

"It won't be the same package in 2008 but... it's a sign of good faith of what we see as a credible tax cut programme."

Dr Cullen said Mr Key had changed his position.

"We see again this slipperiness and this inability to be careful about issues which are actually pretty important," he said.

Dr Cullen said Mr Key may find it difficult to give the tax cuts he wanted: "He'll find there isn't a lot of room left after Thursday afternoon."

Asked if he would follow the Reserve Bank guide that tax cuts costing over $1.5 billion would be inflationary Dr Cullen said: "I'm not taking any guide and the Reserve Bank may well want to revise its views in the light of changing circumstances in the economy at the present time."

He cited the upcoming Emissions Trading Scheme, housing slowdown, and easing in the labour market.

"Because obviously the economy's slowing down that's reflected in the tax take all things being equal."

Mr Key said he looked forward to seeing the forecasts. "We haven't finalised our tax cut programme - of course we'll look at what the fiscal numbers are on Thursday and whatever tax cut programme we finally deliver to the electorate will be one that's affordable, carefully considered and credible."

Dr Cullen said his tax relief would be "sustainable" and would not affect social services. He said National would have to borrow or "slash into the heart of social spending".

"Well he would say that," Mr Key responded. He said his party's tax programme would be phased in. He said National's 2005 policy, which Dr Cullen railed against, would have been affordable.

Asked why he had not given cuts earlier Dr Cullen said previous forecasts were for a correction in the economy and the government had other priorities in areas like education and health.

Indirectly referring to the latest Fairfax Media poll which gave National a 27-point lead over Labour and found 30 percent of voters wanted between $60 and $80 a week in tax cuts Dr Cullen said answers depended on how questions were phrased.

"They want tax cuts but they don't want tax cuts at the expense of social service provision," he said.

Dr Cullen said a $50 a week cut would cost $5 billion net a year and $20 billion over four years.

Parliament would go into urgency on Thursday to pass the budget.

But Dr Cullen gave an assurance there would be no unexpected tax hikes on items such as tobacco or alcohol. Dr Cullen said that would give people confidence the cuts would happen.

"I think people want an assurance this time that those cuts are put in place, they know they are going to come, it doesn't lock in a future government."

Previously Dr Cullen said he would introduce inflation indexing for tax rates but the plans were derided as the "chewing gum" tax cuts of between 67c and $10 a week and were abandoned in favour of beefing up the KiwiSaver scheme.

Prime Minister Helen Clark was asked during her post-Cabinet press conference why Labour had not delivered tax cuts sooner.

"I think we have always acted in what we have believed the best interests of New Zealand," she said.

That meant ensuring there was "proper investment in the basics".

"Which Kiwis really do care about and any government that tries to short-change health and education, superannuation, and law and order soon hears about it from the Kiwi public so we've made those things a priority."

Miss Clark hoped the media was "adding up" all of National's different promises from tax cuts to massive investment in infrastructure and thinking about how that would be paid for.

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