John Armstrong: The Cullen leopard is changing his spots

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Without fuss or fanfare, Michael Cullen has quietly begun his transition from tax-cut sceptic to tax-cut advocate.

Few MPs were in Parliament when the Minister of Finance rose to speak on Wednesday afternoon. And most of those who listened to what he had to say would have found it all pretty unremarkable.

Yet, Cullen's speech, if not as significant as Helen Clark's to the party conference last weekend confirming personal tax cuts will happen, certainly came close to it.

Unlike Clark who, as prime minister, prefers to stand above the parliamentary fray at times, Cullen is a frequent participant in the rough-and-tumble Wednesday afternoon general debate. With just a few scribbled notes at hand as prompts, he relishes the opportunity to lash and lampoon the Opposition.

But there was none of that last Wednesday. Cullen's speech notes had been typewritten in advance. The jokes were absent. The minister was in serious mood.

In something akin to crossing the Rubicon, Cullen was putting on the record the reasons he could now cut taxes. He emphasised Labour's fiscal caution since coming to power.

Labour had never taken its eye off the long-term. That approach had enabled it to build surpluses to fund big-ticket initiatives like Working for Families and the Super Fund.

Now the Budget surplus was robust enough to allow the Government to take the next step - cutting personal taxes.

"Ordinary Kiwis" would be getting a dividend from the responsible accumulation of surpluses. Again, seemingly unremarkable stuff. But study the language and it is possible to discern an emerging strategy that takes the fight to National and seeks to scotch suggestions that Labour's talk of tax cuts is merely driven by election-year expedience.

Notably, Cullen and Clark refer to tax cuts as a "dividend" of responsible fiscal policy. This is an attempt to shift voters' attention away from the bumper surpluses of recent years and get them to ask themselves whether they want to jettison the cautious, conservative economic management which delivered them, or take a punt on the unknown under National.

Cullen's speech also reiterated his four conditions for tax cuts: social services must not be cut to fund them; the Government will not borrow to fund them; the Government will not cut taxes in a fashion which exacerbates inflationary pressures; and tax cuts must not produce greater inequality.

These conditions clearly serve a double purpose. Labour will rigorously apply them to the tax package National puts in front of voters. It will judge they have been breached and attack accordingly.

But Labour knows it is starting from a long way behind. All week, John Key and Bill English taunted Clark and Cullen with "you said X for years, and now you are suddenly saying Y" jibes in Parliament.

Clark and Cullen needed all their verbal dexterity to slide away from their previous statements attacking tax cuts which were raining down on them. Harder to dodge was the accusation that Clark's announcement was purely election-motivated.

Clark needed a credible explanation for Labour's sudden enthusiasm. She had recent Treasury advice saying the big surpluses were not one-offs and tax cuts were now affordable. Had Treasury forecasts been more accurate in previous years, she said, then Labour would have cut taxes earlier. It appeared Clark was up to her old trick of using officials as scapegoats to get the Government off the hook.

This time she had a point. The Treasury has persistently underestimated the scale of tax revenues in its forecasts. It acknowledges forecasting errors have made "effective planning and Budget decision-making more difficult for ministers".

Even so, Clark will have her work cut out convincing people Labour would have cut personal taxes earlier.

The record speaks otherwise in Cullen's scrapping in May's Budget of scheduled minor upwards adjustments in tax thresholds. Cullen's public explanation was that the modest cuts meant only a few dollars in extra take-home pay and the money was better spent bolstering KiwiSaver.

Budget papers, however, reveal that behind the scenes Cullen recommended the thresholds not be adjusted "in the medium term" so the Government could keep raking in more tax revenue as more and more taxpayers fell victim to "fiscal drag".

National cites the scuttling of the so-called "chewing gum" tax cuts as amply illustrating Labour's antipathy to tax cuts in general and Cullen's in particular. National will say Cullen's conversion to tax cuts is a charade - and this year's Budget is proof he cannot be trusted to deliver them.

National daily puts up questions in Parliament on Labour's stance on tax cuts to drag Clark into the stoush and bring the Government's overall credibility into question. Clark's hope is that her confirming tax cuts will neutralise an issue where National has held the upper hand for so long.

What her announcement has done is make it more difficult for Labour to scare voters at next year's election.

Cullen has been adamant that cutting taxes necessarily means cuts in spending on health, education and social services.

National has made noises about making the state sector more efficient while hinting the Wellington bureaucracy would be slimmed.

But Cullen argues such savings would be too small. Cuts would inevitably have to be made in big Budget items because they devour the bulk of the money.

That argument is no longer a goer. If Clark is saying the money is there for tax cuts, the money is there for National's tax cuts too. Or at least a fair chunk thereof. National's tax cut package will necessarily be more generous than the one Labour will offer for ideological and electoral reasons.

Where National is vulnerable is Cullen's claim that it will borrow to fund tax cuts.

National argues the Government's debt levels are so low, it does not make financial sense to fund infrastructure spending out of current cash flows and let future taxpayers off the hook.

Borrowing to build schools, hospitals and other capital assets means the Government's tax needs are accordingly reduced.

However, the dictum that "explaining is losing" was never more applicable. While Key and English are trying to explain the technicalities, Cullen will keep repeating the simple message that National is borrowing to pay for tax cuts.

Otherwise, attacking National has become more complicated. Cullen cannot condemn something he now supports.

The tax cut battle has changed to one of degrees rather than absolutes.

But for Labour, however, the first imperative is that the leopard change his spots - at least for appearance's sake. It would seem that he is.

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