John Armstrong: Welcome to the 2011 election campaign

Prime Minister John Key. Photo / Natalie Slade

Yesterday's Budget was the first salvo of the 2011 election. It was all about shutting Labour out of next year's contest, long before the campaign starts.

For National, it was a matter of unfinished business after last year's postponement of the party's second and third round of tax cuts because of the global financial crisis.

It has turned those muddy economic waters into wine by constructing a clever package of significant tax cuts when the Government's books are written in deep dark red.

Doing that required finding revenue from elsewhere - tightening tax rules for rental property investors and depreciation, and stopping the wealthy rorting the Working for Families programme.

These changes give some justification to Bill English's claim that his package amounts to the biggest overhaul of the tax system in 25 years - and one widely welcomed outside Parliament

Inside the House, there is no such consensus. Here, despite the Prime Minister's claims the tax package is fair, the politics rule.

English's Budget speech had more "I'd like to thank so-and-so" utterances than you hear in Hollywood on Oscars night.

Such expressions of appreciation from the ruling party to its minor-party partners in Government are now part and parcel of Budget speeches. They are also a tart reminder of who is in charge.

When the big partner wants something really, really badly, it generally always gets it. And National wanted tax cuts very, very, very, very badly.

The Maori Party might not have liked what it was Welcome to 2011 campaign being forced to vote for under its confidence and supply deal with National. But yesterday's tax cuts are integral to National's brand.

Maori Party MP Hone Harawira sensibly expressed his unhappiness with the income groups to which National's tax cuts are targeted the day before the Budget.

Obliged to speak in the Budget debate in Parliament yesterday, party co-leader Tariana Turia did not bother to relitigate her party's opposition to the rise in GST or question how much extra the low-paid will be getting.

She knew it was National's day.

By cutting the 33 per cent tax rate to 30 per cent and the 21 per cent rate to 17.5 per cent, National has gone some way towards rebutting Labour's "tax cuts for the rich" charge, at the same time invading territory where Labour should hold sway.

National is now camped around the $40,000-a-year salary level - roughly the boundary between low and middle-income earners. It is the point at which National's tax cuts become more meaningful in dollar terms each week.

Those on $40,000 will get close to $10 extra a week once the rise in GST is taken into account. That extra increases to about $25 at $80,000 and more than $40 for those on $100,000.

Labour will now have to really soak the rich to bolster those at the bottom end of the income scale, where its core vote resides, and still be able to outbid National in the middle.

Beyond the surprise cut in company tax, the Budget lacks bright ideas to galvanise economic growth.

But its tax component goes a long way towards differentiating the two main parties to a degree not seen in recent years.

Slowly, but surely, the battle lines are being drawn for next year.