KEY POINTS:
The political heat is back on Labour to cut personal tax rates after the Government racked up an $8.7 billion surplus - leaving Finance Minister Michael Cullen with plenty of money to woo voters at next year's election.
The latest in a string of big fiscal surpluses was
revealed in the Treasury's final accounts for the 2006/07 financial year. The $8.7 billion operating surplus was well ahead of previous forecasts because of unexpected strength in the economy, which brought higher tax revenues not only from workers and companies but through GST.
Dr Cullen - who has resisted cutting personal tax rates or raising the thresholds at which they apply during his eight-year tenure as Finance Minister - now sounds more open to the possibility in next year's Budget.
"As I've been indicating, I do expect to address those issues in next year's Budget," he said. "But no formal consideration has been given to the size or shape of any tax cuts, and therefore there's not much point in asking me a lot of detailed questions."
Later, to goading in Parliament from National Party deputy leader Bill English about the absence of personal tax cuts, Dr Cullen said Mr English "may well have to eat his words".
Decisions on any future personal tax cuts would be made in the context of next year's Budget and not before, Dr Cullen said.
United Future leader Peter Dunne said today that when it came to tax cuts, neither of the main parties had a record to be proud of.
"National last cut personal taxes in 1996, when it was in coalition with United, only to reverse most of them the following year because of its deal with New Zealand First," he said.
"The first thing Labour did when coming to office in 1999 was put taxes up."
Mr Dunne, Minister of Revenue, said National voted against business tax cuts in this year's budget.
"That makes its current lament that tax cuts are overdue look a little pathetic."
Mr Dunne said his party believed personal tax cuts were overdue and there was scope for that in next year's budget.
The Government has healthy accounts and a large surplus that will give it many options as it goes into the election campaign.
The operating balance may have been lower than the $11.5 billion recorded in the 2005/06 fiscal year but it was higher than any other under Dr Cullen's management. It was accompanied by a cash surplus of $2.6 billion that was a huge turnaround from what the Treasury originally projected for the 2006/07 year - a cash deficit of $1.5 billion.
Much of the money in the operating surplus has already been tagged for spending, and some of it goes into the New Zealand Superannuation Fund, but Dr Cullen conceded there was a surprisingly high amount of cash that he had to consider what to do with.
"It is likely to be used in some area of capital expenditure, but no serious consideration has been given to where this money will be used," he said.
National seized on the bulging Government books as an opportunity to force tax cuts back on to the political agenda, and it ramped up pressure on Dr Cullen by highlighting the struggles of people earning $39,000 a year who come into the 33c tax rate.
"The massive surplus is paid for by people on $39,000, who pay the rich man's tax rates," Mr English said.
"They're dealing with interest rates that have gone up four percentage points since Labour took office, they're now paying 9.25 per cent on their mortgages, they've seen electricity prices rise by 25 to 30 per cent, milk and butter has gone up - these people are facing a real squeeze on their household budget," he said.
Mr English and National Party leader John Key accused Prime Minister Helen Clark and Dr Cullen of building up a kitty to buy the election.
But the Prime Minister retorted that the pair had "fiscal envy" and were jealous that Labour had presided over years of good economic growth and sound accounts.
National's decision to switch its emphasis on tax cuts away from the top 39c rate that 14 per cent of earners now pay - compared with 5 per cent when Dr Cullen introduced it - towards middle-income people is a foray into Labour's core constituency.
While Dr Cullen is wary of the inflationary consequences of tax cuts, the risk that National's argument might resonate with average income earners means Labour looks almost certain to deliver some kind of personal tax cut in next year's Budget.
