PM promises personal tax cuts next year

Last updated 16:53 03/11/2007

The Prime Minister has stood and delivered. Helen Clark did the only thing she could do to blast the nasty images of conflict outside her party headquarters off tomorrow's front pages - promised tax cuts.

Yes, I know, you've heard it all before. But the PM has never been so unequivocal before. This from her speech to Labour's conference in Auckland this afternoon:

"Over the years we've been in government, Labour has been blessed, or is it cursed, with rising surpluses. Every year officials have sought to explain them away by one-off factors. Now they concede that the surpluses are structural.

"That gives Labour more choices ... to deliver hard-working New Zealanders a direct dividend through a personal tax cut. That will happen under Labour.''

Finally, no ifs or buts or maybes. This is read-my-lips stuff. So much for Michael Cullen's caveats and the constant promise of jam tomorrow. It's jam next year, finally.

Of course, the size, shape, makeup and timeline of the tax cuts haven't been revealed. And won't be until the election campaign, I'll bet. But it's unlikely they will be measly adjustments to the income thresholds such as the ones Cullen tried back in 2005. There's too much expectation now, and Labour is no longer trying to limit it.

In case you're wondering what has caused this Road-to-Damascus conversion, it turns out that it's nothing to do with the public clamour for tax cuts or the fact that Labour is 12 points behind the polls and facing its toughest election campaign yet.

Nope. It's Treasury's fault.

The line being spun here at the conference from both Clark and Cullen is that Treasury constantly told the Government that its big surpluses were likely one-offs and advised against spending it on something as permanent as tax cuts. (So the Government spent it on other permanent things instead.)

Finally, after years of waiting, Treasury has acknowledged that the vast tax revenues flowing into the Government's coffers are not suddenly about to dry up, and Labour can do what it always wanted and cut personal taxes.

At least, that's Labour line. A little difficult to reconcile with Treasury's 2005 advice to the incoming government that personal taxes should be lowered, however - or the fact that Cullen has always made it virtually a point of principle to ignore Treasury advice whenever it suited him in the past.

But Treasury officials can't talk back, at least publicly, so they will have to carry the can for Labour's tardiness in cutting personal income taxes.

Reading between the lines, I'll bet that Treasury has told Cullen that the tax and budget surplus forecasts for next year are now higher even than the previous indications (which were themselves higher than predicted) and that unless Cullen hands some of it back next year, the Crown accounts will be bursting at the seams. 

Clark reckons Labour's plans will leave National badly exposed since the party is, in her words, "a one trick pony''. This is an exaggeration, but she's certainly calling John Key's bluff. It's going to be interesting to see how National responds.

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