Budget ’08: Cullen - No tax-free threshold

NEW ZEALAND HERALD: Finance Minister Michael Cullen has laid out what voters won't get in tax cuts - but given few clues about what they will get beyond warning they "cannot be huge".

In his first pre-Budget speech, Dr Cullen said the promised tax cuts would not take the form of a tax-free threshold, despite this being his initial preference.

However, he promised all workers would benefit in some way, and indicated middle and low to middle income earners were the main targets of his plans.

In a speech to the Chartered Accountants Institute, he said voters need not expect to have money thrown at them saying "the truth is, tax cuts cannot be huge".

In keeping with his tax cuts test that they should not increase inequalities, he said while Labour recognised the need for some relief across the economy, the need was more acute at the bottom end of the income ladder.

"Spending recklessly on upper and upper-middle income groups would be potentially advantageous but also irresponsible and would detract from what could be provided for all workers."

He said he initially considered a tax-free income threshold which was popular in the wider community, the Labour Party and union movements.

However, he discounted it after officials said it would benefit few on incomes under $18,000 and would cost $3.9 billion by the third year, leaving little for "meaningful relief for those further up the income scale that have missed out on previous rounds of tax relief".

He also downplayed what people could expect from his three-year programme of cuts, which will be announced on May 22.

He said Budget forecasts would show lower growth and tax revenue, which made it harder to balance delivering tax cuts with the need for spending on government programmes and investment in infrastructure.

Nor would polls scare him into spending up large, despite media commentators arguing a decent Budget was one of Labour's last chances for a boost in support.

"We will not buy into media spin that a big-bang Budget is vital to electoral success when delivering such a Budget would be a recipe for economic failure."

He said the lack of tax cuts in previous years had funded policies dear to Labour's heart, such as paying off debt, Working for Families, increasing pensions, a stronger benefit system and investing in government services such as health. It had also enabled the country to better withstand the current global economic pressures.

National's Bill English said Dr Cullen's address sounded like "a legacy speech".

"It's him setting out what he's done before he jumps over the political cliff."