Budget 2005: Workers' three-year wait for $6

Budget changes to personal income tax thresholds will save the average wage earner about $6 a week - but not for another three years.

The thresholds will on paper be inflation-adjusted by 2 per cent a year from the start of the new financial year, but will only impact on actual tax paid once every three years - effecting a 6.12 per cent change - beginning in 2008.

It is the first time Finance Minister Michael Cullen has adjusted the thresholds and made any concession to calls for "tax cuts".

But National Party finance spokesman John Key blasted the change as "too little, too late".

National has been waiting for the Budget before unveiling its tax policy, expected within weeks.

It will use the threshold changes to claim it forced Dr Cullen to accept that the tax take is a problem - but argue that he has not gone nearly far enough.

Mr Key said the tax changes were "ridiculously small".

"It's now clear why Michael Cullen did not want to promote this Budget - it's a joke."

The changes will see the average full-time wage earner - on $42,920 a year - saving just over $6 a week.

Asked why it would take three years to kick in, Dr Cullen said it fitted the Government's "fiscal forecast", meaning it did not believe it could afford the spending now.

He had no plans to change the actual tax rates, saying it was too expensive for too little taxpayer gain.

"It would be very difficult unless you're prepared to bite the bullet of significant reduction of expenditure growth.

He warned that Budget commitments to date and the forecast slowdown in economic growth meant there would be little spare cash for significant new initiatives in future years.

National was promising tax cuts in the realm of $2 billion a year, but this year's operating surplus was largely spent and deficits were predicted for the next three years, said Dr Cullen.

Only significant expenditure cuts in other areas such as healthcare and education could fund major tax cuts: "There is no free lunch."

Mr Key agreed that $2 billion was a ballpark figure for the size of tax rate cuts National would promote.

Expenditure cuts would help to fund the tax reduction, but Dr Cullen was exaggerating the extent of the economic slowdown and the amount of money it would slash from Government spending, he said.

New carbon taxes and other levies would gobble up any savings from the threshold adjustments before they even kicked in, said Mr Key.

United Future claimed credit for the threshold adjustment, with leader Peter Dunne saying it was the result of three years of intensive lobbying.

The party was pleased the tax brackets would be indexed to inflation but disappointed that the Government lacked the courage to implement the changes immediately.

Green co-leader Rod Donald said it made sense to inflation-adjust the thresholds, but the changes mostly benefited the well-off. Instead, he called for a tax-free threshold for the first $5000 earned.

Act leader Rodney Hide said workers had been "ripped off again" and taxes should have been slashed.

Roger Kerr, executive director of the Business Roundtable, said the Budget was a missed opportunity to reduce Government spending and taxing that was stifling economic growth.

* Savings in 2008

Most taxpayers on this rate will pay this much less in a year in 2008:
21% $35
33% $314
39% $534