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Home / Business

Beware what you wish for, Cullen warns businesses

By Paula Oliver
12 Jul, 2007 05:00 PM3 mins to read

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Michael Cullen

Michael Cullen

KEY POINTS:

Finance Minister Michael Cullen is challenging the business community to be more responsible about what it calls for, as he prepares to bat off criticism of yet another higher-than-expected Government surplus.

Dr Cullen yesterday ventured into the territory of one of his harshest critics - an Employers &
Manufacturers Association CEO breakfast in Auckland - and delivered a blunt message to those present.

"What, realistically, would happen if we didn't operate strong fiscal surpluses?" he said in speech notes.

"If I had caved into calls for more spending and more tax cuts in this year's Budget, the fiscal impulse would be very predictable: domestic demand would have raced ahead, aggravating the imbalances," he said.

Dr Cullen said no serious commentator could argue that conditions were now suitable for the big fiscal impulse that tax cuts would inject into the economy.

"The business community in New Zealand also has an obligation to be vigilant and to be outspoken about the need for orthodox and responsible fiscal policies," he challenged the audience.

The Treasury yesterday released its latest monthly track of the Government's accounts, which revealed an operating balance $600 million ahead of forecast at $7.2 billion.

That surplus, for the 11 months ended May 31, was boosted by higher-than-expected investment returns which the Treasury said were retained by the entities which earned them and were not available for redistribution.

Dr Cullen's cash surplus in the same 11-month period was running $300 million ahead of forecast, at $2.27 billion.

The big surpluses run by Dr Cullen have in the past been heavily criticised by the National Party and other detractors who argue that they are clear evidence the Government is over-taxing workers.

But in the present environment of persistent inflationary pressure and rising interest rates, it has become more difficult to argue for tax cuts which could in turn lead to even higher interest rates.

Dr Cullen said yesterday that he was not saying "never" to tax cuts - rather he expected in next year's Budget to lay out Labour's long-term programme for "paying out dividends to ordinary Kiwis by way of tax cuts".

In the meantime, he wanted the business community to be more careful about what it wished for.

The Employers and Manufacturers Association's northern wing is a regular critic of the Government's policies, and chief executive Alasdair Thompson was yesterday not concerned about Dr Cullen's speech.

"His speech was fine," Mr Thompson said.

"That was maybe a fair comment, and it was maybe a fair comment in regards to EMA," he said.

"What he is trying to achieve we endorse.

"How he is trying to achieve it is not how we would do it."

And it appears that any hope Dr Cullen had that the association would stop calling for personal tax cuts in the present environment will be dashed.

Mr Thompson pointed out differences in tax thresholds between New Zealand and Australia, and said the Labour-led Government was not running the tight fiscal ship it claimed when it was over-taxing workers.

Asked if he expected Dr Cullen to deliver tax cuts in the present environment, Mr Thompson said "he has got to".

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