Budget’s deep, dark tax secret

Speculation is mounting that tomorrow's big Budget secret will involve a promise to raise the higher tax rate thresholds.

In Parliament yesterday, Finance Minister Michael Cullen continued to refuse to rule out such a change.

Predictions that the surplus will be larger than a forecast $6.4 billion are fuelling the expectation.

The Government has repeatedly signalled there will be a surprise announcement in the Budget.

National finance spokesman John Key now believes Dr Cullen will signal increases, which could come into effect immediately.

National plans to unveil its tax policy within weeks of the Budget.

It has signalled tax cuts and believes a change to the thresholds would be the easiest way for the Government to try to neutralise it on the issue.

Labour entered Government in 1999 with a pledge that no more than 5 per cent of workers would be in the top income tax bracket.

The number has now more than doubled to about 12 per cent.

Labour Party president Mike Williams said: "There's something in the Budget that is referred to as the deep, dark secret, but whether that's it I just don't know."

He said he would support a threshold change if money was left over after health, education and major infrastructural projects.

"I read in the paper the surplus is somewhat higher than expected so perhaps there is a bit of room."

Unions yesterday said the thresholds needed review.

Engineering, Printing and Manufacturing Union secretary Andrew Little said: "My hunch is we are close to a point where the Government can't ignore the issue."

Council of Trade Unions economist Peter Conway said: "The Government is going to have to signal they are going to address it in the next term, either in the Budget or before the election."

Mr Conway said the first priority for CTU members would be to adjust the middle tax rates, but both men said for fairness reasons they believed the Government would have to adjust all the thresholds at once.

For the same reason Mr Key agreed changes would have to be across the board, but predicted they would be "minor" - essentially reflecting adjustments for inflation.

If all thresholds were simply inflation-adjusted now, it would cost the Government $655 million a year, he estimated.

Mr Key said this would see the lowest threshold raised from $9500 to about $11,000 and the top $60,000 rate would rise to about $68,000.

Mr Conway said there was little point in the Government raising thresholds by just $1000 a time and if it couldn't afford a more significant increase it would be better to wait.

United Future leader Peter Dunne said it was important because without the changes the benefits of the Working For Families package would be negated.

Greens co-leader Rod Donald said if the thresholds were adjusted for inflation, those on low incomes would get hardly anything while an MP would probably get more than $1000 extra in the hand a year.