Tax cuts 'will happen' but they may be small

Last updated 00:00 05/11/2007

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Across-the-board tax cuts are coming next year, though Finance Minister Michael Cullen is warning they may be small.
Opinion: Tax cut makeover looks a little rich

Speaking at Labour's annual conference, Prime Minister Helen Clark said a "dividend through a personal tax cut ... will happen under Labour".

She also moved to shore up Dr Cullen's credentials as the man to deliver them after calls from commentators for him to be axed in favour of Trade Minister Phil Goff.

"I'm saying that the person who has presided over the growing economy and the strong surpluses is precisely the person to bring them in," she said.

The time was now because the Treasury conceded that, after years of unexpectedly large surpluses, the extra revenue was structural, not one-off or cyclical. "I'd have liked to have done it earlier and I think all our Cabinet and caucus would have, but we've never had advice which made that possible," she said on TV One's Agenda programme.

Labour's plan for tax cuts will set up a head-to-head contest at next year's election, with National also promising significant tax cuts.

Miss Clark said Labour's move would expose National as a "one-trick pony", but she refused to discuss the size, shape and timing of any cuts.

However, Dr Cullen hinted they would be widely spread. "Yes, I am sure there will be something for everybody. But that means individual amounts are not likely to be large, given that the money is spread very thinly."

One of his key tests - that there should be no borrowing for tax cuts - suggests they will be funded out of cash surpluses. In the last financial year there was a cash surplus of $2.7 billion, almost $1 billion above forecast.

It would cost the Government about $2 billion in lost revenue to give an average across-the-board cut of $20 a week.

Dr Cullen has said any cuts should not increase inequality, which suggests a move on thresholds, or a tax-free level of earnings, could be in the mix.

However, he modified his language slightly yesterday, saying they should have a "fair and just element".

He defended his record, saying he had never ruled out tax cuts and had cut business taxes, lowered taxes on savings and investment, and introduced the Working for Families tax relief.

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- © Fairfax NZ News

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