KEY POINTS:
Finance Minister Michael Cullen is pouring cold water on the idea of large-scale cuts in this year's budget.
In notes for a speech to be delivered to the Auckland Chamber of Commerce this afternoon, Dr Cullen gave his views on the direction of the economy and economic policy.
Dr Cullen said the Government was prepared to get its "hands dirty" with incentives for exporters and to increase savings in an effort to improve New Zealand's economic performance.
No details of what this would mean policy wise was mentioned in the speech.
He praised New Zealand's economic performance over the past six years and said he did wish to see all people reap the benefits.
The Government had done this already through spending -- such as the Working for Families package -- and he was looking at some form of personal tax changes.
"The direction I would like to see for personal tax changes is where, over time, cuts are shared across the board. This is the best way to let everyone share in the benefits of economic growth," he said.
This indicated he could be looking seriously at lifting the income thresholds at which tax rates cut in, as straight forward cuts to the rate tend to give more benefit to higher income earners.
He poured cold water on those hoping for ambitious tax relief to be foreshadowed in the near future.
Putting more money in people's pockets would be quickly wiped out by the Reserve Bank lifting interest rates, he warned.
"It seems increasingly unlikely that large-scale personal tax changes can be foreshadowed in Budget 2007 and introduced on 1 April 2008 without a response from the Reserve Bank, unless accompanied by corresponding cuts in social services.
"Not least because such a signal would generate increased spending even before a cut came into force."
Dr Cullen said if the benefits of economic growth were not shared equally then it would undermine stable society.
Dr Cullen said the Labour-led government's economic strategy aimed to position New Zealand for long-term challenges such as globalisation, an ageing population and climate change.
He said the government was prepared to take some well-judged risks to help rebalance the economy towards exporting.
"Where I think this leads you is that you have to get your hands a bit dirty, especially when the rest of the world is doing just that," Dr Cullen said.
The government's priorities would be a cut to the corporate rate and included business tax changes to drive improved productivity and competitiveness and efforts to develop a savings culture.
"There is little point in complaining about increasing foreign ownership of the New Zealand economy if we are continually saving far less than our investment needs," he said.
"I particularly want to encourage savings by those of modest means, difficult though that is for many.
"That is because inequalities in income translate into much greater inequalities in wealth over time."
Besides current saving policies such as Kiwisaver, Dr Cullen did not sketch out any further policies in this area.
- NZPA
