Cullen hits at Brash over tax 'myths'

Michael Cullen

Finance Minister Michael Cullen last night continued his fight-back against National's promise to cut tax, painting leader Don Brash as a "snake oil merchant" peddling unscrupulous promises based on myths.

Dr Cullen targeted "the myth of big government and the myth of high tax."

"You know it is election time when the snake oil merchants start to circulate," he told the Waipukurau Rotary Club.

Just because New Zealanders believed that Government spending was increasing and that they paid high rates of tax, "that does not make these things true."

Dr Cullen has been aggressively defending the Government's record of economic management since the poor reception of tax measures in his May 19 Budget that will give taxpayers between 67c and $10 a week in three years' time.

Dr Brash, who is delaying announcing details of his party's tax policy until closer to the election, said at the weekend there would be "relief" for all personal income taxpayers from April 1 next year if National won power.

Dr Cullen said that relative to GDP there had been a three percentage point fall in the size of central Government, equating to a 10 per cent fall.

In 1999, central Government spending - excluding state-owned enterprises and local government - was 33.3 per cent of GDP. It was now 30.1 per cent.

"In other words, over the last five years the public sector in New Zealand has shrunk in relation to the economies that we compare ourselves to."

Government spending had been increasing in numerical terms "but the economy has been growing, with the result that the relative size of the public sector has been falling relative to the tax base", the minister said.

Referring to tax cuts, Dr Cullen said they were very expensive and produced little gain for the bulk of taxpayers.

Adopting Dr Brash's own language, Dr Cullen said the best response to anyone who says Australians pay less tax was "baloney."

The top rate in New Zealand was 39c on income over $60,000. Australians paid 42c on income between $A58,100 ($62,670) and $A70,000 and 47c on income over $A70,000.

As well, Australians paid a 1.5 per cent Medicare levy, in essence a dedicated health tax.

Taking into account Australian tax measures operable from next year, someone on the average New Zealand wage of just over $40,000 would pay tax of 20.6 per cent in New Zealand and 20.9 per cent in Australia including the Medicare levy.

He also attempted to show that tax cuts were costly: in New Zealand every cent off the bottom rate of 15c would cost $215 million; every cent off the rate of 21c would cost $325 million; every cent off the 33c rate would cost $95 million and every cent off the 39c rate would cost $115 million.

Inevitably, the lion's share of any tax cut would go to those with the highest taxable income.

"Tax cuts are like a buffet meal where guests can all see and smell the food but are summoned to partake of it one table at a time, starting with the wealthiest table and moving down the scale," Dr Cullen said.

"By the time the table of small business owners or of families on the average wage gets their turn, everything has been eaten bar a few crumbs and scraps of gristle around the bone."

The bill had three parts: rising interest rates, higher public debt placing an additional impost on another generation, and cuts in services such as healthcare, education and police.