Cullen tells of tax and tension

Labour heavyweight Michael Cullen has a taxing job as Deputy Prime Minister, Leader of the House, Finance Minister, Tertiary Education Minister, and Attorney-General.

And like nothing else, the issue of tax cuts has put him under pressure since the 2005 Budget.

This year, on the back of large tax cuts in the Australian Budget nine days before Dr Cullen's seventh Budget, the National Opposition succeeded in thrusting the issue back on to the political agenda.

Cullen's visible anger at individual journalists' coverage of the 2006 Budget was apparent in a television clip, screened on TVNZ last week, of a conversation with a reporter that he believed was private. Private or not, it has renewed talk about the stress the issue creates for Cullen.

You are looking quite stressed these days? Are you as stressed as you look?

Depends how stressed I look ... I'm carrying a very heavy workload at the present time. I've always looked like that, my entire life.

Stressed?

Yes.

Even when you are not ?

Even on those rare occasions I am not stressed. Yeah. Certainly it's well over 40 years.

Are you saying you are not more stressed now than you have been in past years?

Less. There are ways of measuring that.

How?

Oh physically. I have suffered from stress and nervous tension for over 40 years in my life so I know what it feels like if I am highly stressed as opposed to when I am not so highly stressed. I used to be much worse than I am now.

Do you exercise to get rid of it?

I exercise anyway. That's helpful. There are many physical manifestations of stress if you have been a long-term sufferer as I have been. It may seem a strange job to be in but I have always suffered my entire adult life from stress and tension.

You seem to be irritated by National finance spokesman John Key. Is that because he is very good or very bad?

No, I am not irritated by him. I think he is a disappointment. He started off, I think, quite well but he just continues to plumb new depths of shallowness, I'm afraid. He has basically, sadly become a kind of Tony Ryall version of a finance spokesperson - never says anything of any significance and when he is pushed in an interview he never has any substance or detail.

This is the third minority Government you have played a leading role in managing. Is it easier than the others?

In the immortal words of Chou En Lai, it is too soon to tell. I don't think you can tell until you are further into a government. They have all presented their own challenge. I think we have learned about MMP better than the National Party has so far. They are still showing they haven't learned some of the fundamental principles of MMP, that you just can't get your own way in everything. And more importantly you have got to learn to work with parties on an on-going basis. You can't kind of pick them up.

Is it a challenge to keep a tired old caucus motivated and unified?

It is not a tired old caucus. You've got a range of new ministers in there, less experienced, certainly so. The Prime Minister is still, what, 55 is it? - I don't ask too closely these sorts of questions - which is scarcely old to be Prime Minister. It's interesting that at 61 people see me as on the older side. But internationally I would scarcely be seen [that way]. I think there's a continual process of renewal.

How would you describe the state of the Labour Party as it nears its 90th anniversary?

Remarkably young and vigorous for 90. All parties have to engage in this process of renewal and thinking about the future. But looking back, I've been in a period where we were tearing ourselves apart, and in the period where the key issue facing the electorate at one stage was "who is going to be the major centre-left party?" - was it going to be Labour or had Labour's time past?

That, after all, was the issue leading into the 1996 election. Would Labour survive as the major centre-left party and National's rival? A lot of people were counting us as dead in the same way that a lot of people, foolishly in my view, counted the National Party as dead after the 2002 election. Breeding, genealogy, depth, history counts an awful lot, funnily enough more when you are in trouble than when you are not because parties like Labour and National have deep resources and in the end come through when they are under serious stress and they reassert their position.

So I am not surprised at all to see the re-emergence of, in effect, a bi-polar parliamentary system from the rather odd single super-power arrangement that we had in 2002 to 2005 which was never going to last in that form.

Do you have a departure date and exit strategy?

I don't have a departure date. I don't have a clear exit strategy. I have no need to at this point. I have a lot of things I am doing. I am enjoying enormously the additional portfolios. Tertiary education - I have a lot of work going on there.

Might you step down as Labour deputy leader before the next election?

Oh, I haven't got around to that decision. February next year is the normal time for us to elect or re-elect the leader and deputy leader. I've made no final thoughts on that. All I can say is my colleagues seem very keen for me to stay on. Indeed I don't think I've been quite as popular as I have been in the last few weeks within my own colleagues and with people on the street.

Why?

Because most people do support me being Minister of Finance. You'd be surprised at how warm the greetings have been in the street in the last week or so. There may be a message in this.

Do you intend putting your name forward at that first caucus next year?

That would be my intention at this point, yes.

Do you feel more popular than ever because people are feeling the need to rally around you?

I think they see some of the attacks on me as representing their fears about what might happen to New Zealand. The fundamental position that we come from is that National can't get elected if people understand what they really want to do.

Taxing questions

Are you still grumpy that you almost lost the election on tax?

I wasn't as grumpy as some of you made out. I was only grumpy because people blamed me for their errors. I always get grumpy when people do that.

Can you explain?

I'll go over the ground again. I didn't lead anybody to believe there were tax cuts in the 2005 Budget. It wasn't my responsibility necessarily to correct people's errors and what I got grumpy about was people trying to blame me for their mistakes and I don't think that is reasonable.

You have been saying lately that business tax cuts would have some impact on personal tax rates

Could have, could have.

Surely that's a hint of personal tax cuts and yet you get incredibly annoyed when others talk about it. Why?

No. What I have said consistently, and I know it is hard to get reported accurately on this, is my judgment, certainly in the context of this year's Budget, is that if you want a substantial tax cut - remember what was on the table was $2 billion a year from National from April 1 this year - you would have to have corresponding reductions in expenditure.

We have already a strong fiscal stimulus for the coming year; we have inflation above the target rate; we have a tight labour market and we have a horrible current account deficit. Those aren't situations in which the Government could justify a higher level of fiscal stimulus. It's not a question of "You can't have them." It's a question of "There are costs."

Why isn't the message getting through then?

I think it still fundamentally comes down to a misunderstanding around what an operating surplus actually is - and that over the next four years that operating surplus is entirely committed. What most people naturally think in terms of - and this isn't in any sense a criticism because I think the same way myself most of the time - is of cash accounting. That's what our gut instinct is about.

The issue is not that you can't do tax cuts. What I get annoyed about is the argument that there is a free tax cut to be had that's large. But the extent to which we can move on the business taxation area and any potential flow-on from that is significantly dependent upon the degree of difference between the IRD and Treasury forward forecasts on revenue. If the IRD is right, then we have a reasonable amount of headroom to move. If Treasury is right, then it will heavily constrain what can be done.

Who is usually right?

Well they haven't been this wide apart for some time. That's the difficulty.

It's a quite different assumption about the slow-down of the economy on corporate profits and therefore the corporate tax take over the next two or three years. We should know that pretty much in time for next year's Budget.

Does that mean it is possible you could be announcing personal tax cuts for 2008 in next year's Budget?

I don't want to hold out too much because that builds expectations and don't forget that they are hugely expensive if they are of a large size. I mean the much derided indexation [of threshold from 2008] was still $360 million to deliver very little to quite a large range of full-time income earners. And that's the difficulty. You've got well over two million people in employment. So a simple sum says if they [tax-cuts] were averaging $10 a week, that's a billion dollars, over.

The thresholds for the 33c rate have not changed in eight long years. Do you blame people for being impatient and in hindsight do you think it would have been better to move on that earlier?

No. You are making an assumption that you have to be very careful about. You are making an assumption that the large pressure is for movement. Now take that TVNZ poll - after what was essentially a push question at the start - around the size of the operating surplus. People were then asked what their top priority was. I was amazed that most of the media didn't pick up the obvious fact that 25 per cent said tax cuts were top priority; 75 per cent said spending increases in a range of areas. Health was the biggest with 47, but [that] left another 28 per cent which were all areas of spending of one sort or another.

It is simply not true that tax cuts are most people's top priority. And that, I think, has got to be well understood. And for a Labour-led Government to deliver in that area, we must ensure it is not at the expense of good social service provision, infrastructure, investment and so on because we will be heavily punished by the electorate and rightly so given the undertakings we gave to the country ...

Again what seems to be forgotten is that we did win the election and the alternative proposition was not supported by a majority.

You squeaked in.

But "squeaked" is a win. We won by a much larger margin than the Government won in 1978, 81, 93, okay?