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Tax Cuts Debate Heats Up Before Budget

Fuseworks Media
Fuseworks Media

This election year size does matter as party leaders jostle for position on tax cuts.

Finance Minister Michael Cullen has repeatedly dampened down expectations about the size of cuts his party will deliver in Thursday's budget.

Yet the latest Fairfax Media poll, which gave National a 27-point lead over Labour, found 30 percent of voters wanted between $60 and $80 a week in tax cuts.

Dr Cullen said poll 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.

National leader John Key yesterday said his party would not announce its tax policy yet -- but if it followed the outline of its 2005 policy people on the average wage could expect tax cuts of about $40 a week.

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

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

"He'll (Mr Key will) find there isn't a lot of room left after Thursday afternoon," Dr Cullen said.

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."

Dr Cullen also ruled out a dividend saying there was "no basis" for speculation about one.

There was some confusion about National's position on tax cuts yesterday with one media report saying National would cut "north of $50" for people on average incomes. However Mr Key said that was in reference to what people thought was a meaningful tax cut rather than what his party would deliver.

Dr Cullen said Mr Key was being "slippery". He said the $50 cut would cost $5 billion a year and said it was irresponsible to make such a plan without knowing what the fiscal forecasts were.

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."

Mr Key said while he had not announced National's tax policy its 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 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".

Mr Key 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 tax 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.

Prime Minister Helen Clark said Labour had always acted in what it believed was the best interests of New Zealand.

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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