Colby tax cuts may be too little, too late

It's the Colby Budget. 

If 2005 was the year of the "chewing gum'' tax cuts, 2008 is the Colby tax cut - roughly the equivalent of the cost of a one kilo block of cheese.

Faced with public clamour for substantial tax cuts to ease the pain at the checkout and the pump, Cullen is offering immediate relief to the average wage-earner of ... wait for it ... $16 a week. If you're prepared to wait another year and a half, there's another $6 a week in it for you.

That's perhaps another packet of Chesdale cheese slices.

Those on higher incomes will get $28 a week from October 1, while the lowest paid will get $12.

Granted, these numbers increase over three years - by 2011, a low-income earner will be $22 a week better off, the average wage earner $32, and those lucky high-income breadwinners $55 a week. In three years' time? Big deal, some might say.

But Cullen has just told us that this really is all the economy can afford - that even this will cost $10 billion, and that the economy will run into deficits approaching $3.5 billion as a result of the additional spending and slowing economic growth and tax revenue. 

There is, he says, no room to cut taxes any more - or as he put it, "no sensible person'' would cut taxes any further. 

Let's give Cullen some credit. He did what he felt he could without going against everything he believes in. He's brought the package forward to October 1, before the election. 

He's done his best to dress up the numbers by adding in Working for Families increases and totalling up the cost of the package over three years. And it's true that families on middle incomes with children will receive around $4 a week more per child. 

But the fact is the WFF increases, worth around $1 billion, were always going to take place - in fact they are legally required once the CPI reaches a cumulative 5% since April 2007. The only difference is Labour has brought the adjustment forward to October 1 to make the tax cuts look slightly bigger.

Superannuitants benefit, but only because they get any increase in after-tax income as-of-right. So much for Winston Peters' hints yesterday that he had extracted extra concessions from Cullen in the Budget.  

You can also argue that, strictly speaking, beneficiaries benefit too, because of a rise in the family tax credit. But the amount is paltry.

Cullen told Parliament today that the tax cut package is the Budget's "centrepiece'' and therefore it is on this that it must be judged.  You'd have to say that the amounts are unlikely to provide any meaningful relief for most households.  

He also said the tax reductions were "the dividend'' to workers who helped produce the most sustained period of economic growth since World War II.  Just don't spend it all at once.

There is no getting around the fact that this Budget is no circuit-breaker. There's no "wow'' factor. Apart from tax cuts, there's virtually nothing in it that hasn't already been well flagged, apart from $500 million for a new broadband initiative - half as much as National has promised to spend. 

Can National do any better? Surely it can, and it will. But what of Cullen's warning that the cupboard is now bare? Well, it's only bare if you don't cut any of the Government's existing spending programmes, or reduce the amount going into the Cullen super fund, or decide to decrease the current level of debt repayments.  

The irony is that Cullen is, for the first time, planning to run substantial cash deficits. He's also - finally - spending the surplus. He says he's not, therefore, borrowing for tax cuts. Yet it's all the same pot of money. Going into the red by $3.5 billion is still racking up debt. You could just as well argue Cullen is borrowing for tax cuts as for the health budget, or for the super fund.

It all depends on the level of debt you're comfortable with, and the Finance Minister reckons he's already pushed the boat out as far as he can.

Cullen has kept to his word with this Budget. There is something for everyone. Just not very much.  

My ears pricked up today when I heard Cullen say that he and a group of senior ministers had considered a more substantial tax cuts package but rejected it because of the fiscal implications. Apparently we'll get the detail once Cabinet documents are released in a few weeks' time.

I wonder if those ministers considered the electoral implications. "Budgets don't win elections,'' Cullen told us in the Budget lockup this morning. "But they can lose them.''

 Indeed.