'Adjustments' to tax coming, says Dunne

Peter Dunne

Revenue Minister Peter Dunne says personal tax "adjustments" will happen, conceding that the unveiling of a huge surplus has increased pressure for cuts.

In a statement which goes further than Finance Minister Michael Cullen was prepared to last week, Mr Dunne said yesterday that the "very large" Government surplus meant two things.

"The business tax reduction proposals I announced with Michael Cullen in the Business Tax Review in July will go ahead from April 2008, and they will be accompanied by personal tax adjustments as well, just as we foreshadowed."

The statement was included in a regular newsletter from the United Future leader.

The likelihood of personal tax cuts in the Budget next year is increasing, but Dr Cullen has so far fallen short of publicly committing himself.

The review of business taxes will probably cut the corporate rate to 30 per cent from 33, and flow through to personal taxes, which could undergo an adjustment of thresholds as well as rates.

The changes are expected to be in place in 2008, an election year.

Speaking last week at the announcement of the Government's $11.47 billion annual surplus, Dr Cullen emphasised that the country's massive current account deficit and inflationary pressures needed to be weighed up before personal tax cuts could be made.

He appeared to play down the importance of the surplus in terms of what it meant for future personal tax cuts, emphasising that it was a backward-looking measure and that what happened in the future was more important.

Dr Cullen said he would decide in March next year, when more was known about how revenue was tracking, whether personal tax cuts could be made.

Asked about his newsletter yesterday, Mr Dunne said it had always been his view that the business tax review would result in a lower corporate rate.

If that happened there were "inevitable consequences" for personal tax rates.

Asked if he was convinced that personal tax cuts would happen, Mr Dunne said he was "absolutely convinced that the commitments that we gave at the time of the business tax review will be honoured".

"But it's a matter of just taking things one step at a time."

In a sign of what may be coming, Mr Dunne said he preferred incremental tax changes rather than "big bang" cuts.

He also conceded that the huge Government surplus added to the pressure for personal changes - although like Dr Cullen, he added that it was important to look at what was already coming out of that surplus before deciding what was available.