Not a winner

Three years ago the Minister of Finance, Michael Cullen, was widely derided for his "chewing-gum Budget", delivered just before the 2005 election, when he failed to meet public expectations for substantial tax cuts, The Press writes in an editorial.

While trying to appear as though he was giving some tax relief, Cullen served up mere tinkering with thresholds that would have delivered about 67c a week to the average earner. It was a serious political miscalculation for which he took a severe pasting.

It arose from the conservative, cautious - some would say over-cautious - style Cullen has shown in the management of the economy throughout his tenure as Finance Minister.

In his latest Budget delivered yesterday, Cullen has avoided making the same political mistake again but he has kept faith with the style of the last nine years. While he has had to bend - reluctantly - to the prevailing consensus that tax cuts are unavoidable if Labour is to have any chance of winning another term at the next election later this year, he has resisted the obvious pressure to become engaged in a bidding war on how much he will give back to taxpayers.

The extra cash that income-earners will get from October 1 this year from a combination of a cut in one tax rate, a raising of thresholds, and increased payments to those receiving benefits from the Working for Families scheme are relatively modest but they are not negligible. Along with the spending programmes outlined in the Budget, they are entirely in keeping with Cullen's notion of what is required for prudent economic management. Cullen has not given in to the temptation to produce something that would turn heads in the run-up to the election and he deserves credit for economic consistency. Whether he will get any more credit than that remains to be seen.

The cuts are the first that Cullen has made as Minister of Finance despite the fact that the country has run large Budget surpluses for more than four years. They do not begin to come into effect until October this year. Many critics look enviously across the Tasman and see an economy similar to New Zealand's in many respects, where income-earners have just had a Budget that has given them tax cuts for the fifth year in succession. Many will say the cuts now are too little and too late.

They certainly come at a less propitious time. Turmoil that began in the housing market in the United States and spread to financial markets around the world has not yet played itself out. New Zealand, like many other countries, faces an uncertain future, with the twin ogres of slowing growth and rising inflation calling to mind the dismal years of the 1970s. Cullen has calculated that the tax relief he has given is the most he can afford, taking into account everything else he wants to do, and not unduly stoke the worries of the Reserve Bank about inflation.

This Budget is not an obvious election winner. But now that Cullen has finally laid his tax-relief cards on the table, the onus is sharply on the National leader, John Key, to spell out what he will do if he is elected to office. Now, or very soon, Key must state clearly not only the size of any tax cuts he will make but also, and most crucially, how they will be paid for. Empty points-scoring in this debate is no longer enough.

- © Fairfax NZ News