Knives out for Cullen over tax cuts

By Audrey Young

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Finance Minister Michael Cullen defended Labour's social policy priorities yesterday against attacks over his aversion to tax cuts following a fifth consecutive tax-cutting Australian Budget.

Labour is expected to cut the business tax rate from 33c to 30c as part of a $1 billion business tax package in Dr Cullen's Budget next Thursday - but that will be the first cut he has made to any tax rate in eight Budgets.

National finance spokesman Bill English said Dr Cullen had wasted "a golden period" of low inflation and high surpluses.

"It is never going to be as easy. The growth forecasts are now 2 1/2 per cent instead of four and it is just harder to do it when the economy is running low.

"Dr Cullen's record is eight years of missed opportunity."

Mr English said Dr Cullen's failure to budget for tax cuts was a significant factor in the different growth rates of the average wage in New Zealand and Australia.

Dr Cullen pointed to union power in Australia having secured higher wages there.

"Until recently Australia had a much more heavily regulated labour market than New Zealand's, which gave trade unions more bargaining power."

Dr Cullen also said that the Labour Government's priorities lay in education, health and superannuation.

New Zealand had a bigger catch-up job in terms of infrastructure spending, and Australia also had lower levels of debt and debt servicing.

Dr Cullen said Australia's tax cuts could well be inflationary and could result in the Australian Reserve Bank having a stronger tightening bias in monetary policy later in the year.

After the last Australian election, interest rates went up because of the pre-election Budget.

While Dr Cullen has not cut any tax rates - and in fact raised the top rate to 39c - he has hailed part of the Government's flagship Working for Families policies as "tax relief".

He has changed depreciation rates for business, foreshadowed adjustments to thresholds which still have not taken effect, and made employer contributions to the KiwiSaver scheme that starts in July tax-deductible.

There has been pre-Budget speculation that Dr Cullen might make employee contributions to the scheme tax-deductible, following comments by New Zealand First leader Winston Peters that the Budget would provide a "bright light" towards compulsory superannuation.

Mr Peters is due to make a speech in Wellington today on that issue and on what he sees in the need for change in monetary policy.

Mr English, meanwhile, has said National does not support an inquiry by the finance and expenditure committee on monetary policy after originally saying it could be "useful."

"We won't support a futile talkfest."

He thought it might work if the inquiry led to quick, effective policy decisions to reduce pressure on interest rates and exporters.

Dr Cullen said he thought that "bitter Bill" would attempt to sabotage any attempt to find relief for exporters.

"He is determined not to have any kind of cross-party agreement."

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