The tax game begins in earnest

By Paula Oliver

There is now $1.5 billion set aside in the Government's books to cover personal tax cuts in next year's Budget but apparently we shouldn't be reading anything into that.

Today's Half Year Economic and Fiscal Update reveals that The Treasury has set aside a "contingency" of $1.5 billion to cover personal tax cuts, which Finance Minister Michael Cullen is poised to deliver in his election year Budget next year.

But in classic Dr Cullen fashion, when he fronted up at lunchtime today to talk to reporters about the healthy Government accounts, he proceeded to shroud the $1.5 billion figure in uncertainty and clearly enjoyed every moment of it.

No, the figure is not a hint of how big my personal tax cuts will be, he said.

It is not my number, The Treasury thought of it.

And if you think that's definitely what I'm going to do then you're completely wrong.

The only concrete thing to emerge was a feeling that the political game playing ahead of next year's election has well and truly begun.

Dr Cullen has steered the Government into a very strong fiscal position.

Debt is now running just below his target level and is forecast to be quite significantly below that target by 2012.

Revenue forecasts have been revised upwards since May's Budget, meaning there is more money coming into the Government's coffers.

Operating surpluses are predicted for the entire forecast period through to 2012, with the smallest seen at $5.9 billion in 2010.

All this gives Dr Cullen a lot of options.

Today we discovered that the money he has available to put into capital spending _ read infrastructure and buildings like courts and schools _ has been doubled in the forecast period to $1.8 billion.

Expect to see some major initiatives in election year to use this up.

We also found out that the operating spending allowance in Budget `08 hasn't changed and will be $3.1 billion, a nice amount that easily allows for the tagged $750 million extra into health.

And we saw a clear hint in Dr Cullen's statement that Labour is going to put a strong focus in election year on New Zealand's national identity and history, and specifically the relationship between Maori and the Crown.

But unsurprisingly, the new item of information which drew most attention was the $1.5 billion set aside for personal tax cuts.

Dr Cullen wouldn't talk about how much expects to put into personal tax cuts, arguing there was too much uncertainty to know.

He wouldn't say if he favoured threshold adjustments or rate cuts.

He wouldn't say if the $1.5 billion was a minimum or maximum figure.

After a bit of prying Dr Cullen did concede that $1.5 billion was arrived at after a discussion between him and The Treasury.

The discussion was about "what would be a not silly figure to put in", he said.

So maybe the figure is not completely innocuous after all.

It seems most likely the figure is a minimum - imagine the political ramifications of trying to explain to workers why they can't have $1.5 billion of tax cuts that had already been allowed for and when the Government's accounts are so strong.

And expect more than one round of tax cuts to be flagged next year. Dr Cullen made it clear there is room for another round of "revenue reductions" in the four year forecast period.

National, of course, has the same set of strong Government books with which to plan its programme of tax cuts.

It will be crunching the numbers and working out what it can do to trump Dr Cullen.

The tax game has begun in earnest.

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