KEY POINTS:
Finance Minister Michael Cullen has admitted he expects the personal tax cuts he gives in May's Budget will be smaller than National will offer during the election campaign.
And National agrees with him.
In a speech to the Auckland University of Technology's business faculty yesterday, Dr Cullen said he realised National would probably out-bid him.
But he argued bigger was not necessarily better.
"I do realise that the package I announce is likely to be smaller than my political opponents will propose," Dr Cullen said.
"But what I also realise is that my opponents will not be able to outspend the Government on tax cuts without eroding New Zealand's economic platform in the process."
It is the first time Dr Cullen has openly said that what he will give in May's Budget is likely to be smaller than National's proposed tax cuts package, but it has been expected for some time that this would be the case.
Labour is weighing up implementing the first stage of its tax cut programme just before the election - possibly with a cut taking effect on October 1.
Dr Cullen said that decision would be made in the next few weeks.
"I'll probably give an indication of those decisions before the Budget," he said.
A tax cut announced in the Budget would usually take effect on April 1 of the following year, but by advancing this date, Labour tactically makes life more difficult for National.
Not only would people get money in their wallets from Labour before they voted, but National would also need to consider whether to reverse what Labour had done so it could pursue its own plan.
If it did that, the two rapid changes could trigger unwelcome tax administration issues at various levels.
Dr Cullen is determined to convince voters that anything bigger than his offer will be irresponsible and will require cuts to public services.
Yesterday, he said the argument he made in 2005 hadn't changed, and people should consider what they stood to lose in exchange for National's cut in personal taxes.
But National Party leader John Key said it was Labour that was being irresponsible with its spending, and he spoke again of reining in the growing bureaucracy in Wellington.
Stopping the growth in core bureaucrats could save $500 million over three years, and that was money that could go towards tax cuts.
"Put it this way: I don't think Labour is going to out-tax-cut National," Mr Key said on TVNZ's Breakfast programme.
National's finance spokesman, Bill English, said Dr Cullen was mounting a "farcical defence" of the Government's failure to deliver tax cuts during nearly nine years in office.
"Sound economic management has gone out the window. Labour is committed to spending every dollar it has saved up to buy the votes of people who have been overtaxed to pay for it.
"Households under pressure will get the crumbs after Labour has had a feast," Mr English said.
National is also considering bringing its tax cuts forward if it wins the election so voters do not have to wait until April 1, 2010, to feel the impact on their wallets.
"We just think New Zealanders have waited an awfully long time, I mean, nine years now ... If we can bring it forward we'd like to," Mr Key said.
But despite the rising stakes in the tax-cut battle, both sides have been wary of over-hyping expectations.
Dr Cullen said people should not expect gigantic tax cuts of $100 a week, because that would lead to pressure on inflation, higher interest rates and more government borrowing.
"When we announce personal tax cuts, we will not sacrifice the progress we have made."
