Editorial: Cullen moves out of comfort zone

Finance Minister Michael Cullen has screwed up his courage, abandoned the prejudices of a political lifetime and pushed all his chips into the middle, The Dominion Post writes.

The tax cuts unveiled in yesterday's Budget represent a desperate last-ditch bid by Labour to recapture voters' attention. They go against almost everything Dr Cullen has preached in his eight-and-a-half years in charge of the country's finances.

To fund the $10.6 billion cost of the threshold changes over the next four years he is dramatically reducing the size of the buffer he has previously maintained between government expenses and revenue, increasing debt and reducing the provision for new spending in future Budgets by $250 million a year to $1.75 billion.

Contrary to the rhetoric in the Budget documents, which talk about the cuts having the greatest impact on the average take-home pay of low-income earners, he is putting more money in the pockets of the better-off than the poor, though low-income families will benefit from adjustments to the Working for Families regime.

An individual earning $20,000 a year will be just under $12 a week better off from October 1, and nearly $22 a week better off from April 2011. A person earning $80,000 or more a year will be $28 a week better off in October and $55 a week better off in April 2011.

That is as it should be. The Government has a responsibility to look after those who cannot look after themselves and it has done so in past Budgets. But it also needs to give higher-income earners reason to remain in the country. The cuts are desperately needed to narrow, albeit ever so slightly, the widening gap between take-home pay in New Zealand and Australia, as well as to provide relief to people who have been hit by what Dr Cullen calls the global credit crunch - rising interest rates and rising food and petrol prices.

Sensibly, the first round of cuts has been timed to put more money in voters' pockets before the election, and to eliminate suspicion that they would be cancelled after a Labour victory, as the "chewing gum" tax cuts of three years ago were. Shrewdly, too, superannuitants, who comprise one of the biggest voting blocs, will benefit. A married couple will receive an extra $22.94 a week and a single superannuitant an extra $11.92.

By his own admission the cuts have taken Dr Cullen to the limit of his comfort zone. It is a limit he deserves credit for venturing to. Belatedly, it seems, the Government has started listening to the concerns of ordinary New Zealanders.

It must now wait anxiously to see whether it has done enough to persuade them to start listening back.

Much will depend on how National responds. Dr Cullen believes he has painted his rivals into a corner. "The cupboard is bare," he said, echoing former prime minister Sir Robert Muldoon, who boasted of spending all the money before the 1972 election.

But National will almost certainly believe it can shave more than $250 million a year from existing Government expenditure without cutting public services. Next move, John Key.

- © Fairfax NZ News