Forget tax cuts in Budget, says Cullen

Michael Cullen

Finance Minister Michael Cullen is holding out against calls for tax cuts in next week's Budget, saying much of the Government's new spending will be used to meet pre-election promises.

Facing renewed pressure for tax cuts after the Australian Federal Government announced A$37 billion ($45 billion) of its own reductions, Dr Cullen said his Budget would not contain any such moves.

It would reveal a "large" operating surplus, but "that's not what there is to be spent".

"Much of the surplus is spent - it's spent on schools and hospitals and the New Zealand Superannuation Fund," he said at a pre-Budget briefing.

Tax cuts would not be sensible given forecasts that the Government's accounts would move into cash deficits in coming years and while the Reserve Bank remained on heightened alert about inflation.

Asked if there would be any special spending initiatives in the Budget for the Auckland region, Dr Cullen replied: "A packet of Jaffas or something like that?"

The Government is clearly keen to avoid a repeat of last year's Budget, which was derided as the "chewing gum" Budget because of an announced shift in tax thresholds which would have given many people just 67c a week more in take-home pay.

Dr Cullen has appeared to dampen expectation around his seventh Budget, where once again much of the new spending will go into health.

An extra $750 million will be ploughed into the health sector, and Dr Cullen said a lot of other new spending was already committed to meeting election promises from the Labour Party and the minor parties now supporting it in government.

Asked if there would be anything substantial in the Budget for the energy sector, Dr Cullen was blunt.

"No. But I think it's fair to say that I will be mentioning it as an issue of considerable significance in which work is proceeding."

Revenue forecasts by Inland Revenue and the Treasury which will be included in the Budget show differing views of the Government's likely future income.

Dr Cullen said that if the Inland Revenue forecast, which projected higher revenue than the Treasury's, was proven more accurate he would have "more room to consider options" in the Government's current review of business tax.

The National Party again targeted Dr Cullen in question time yesterday, arguing that more New Zealanders would move to Australia after broad tax cuts across the Tasman.

National's finance spokesman, John Key, also pointed to a new report about the competitiveness of countries' economies as evidence of Australia becoming "an even bigger magnet" for New Zealanders.

The annual report by the Swiss-based independent, not-for-profit organisation IMD found New Zealand had slipped six places in the world competitiveness rankings to 22 and Australia had risen three places to sixth.

Mr Key said the report listed several challenges facing New Zealand, including improving broadband, encouraging skilled migrants and ensuring secure and affordable energy and water.

"National would agree that all these are serious challenges facing the country," Mr Key said.

"What's disturbing about this is that we are slipping behind relative to dozens of other countries while our biggest competitor for skills and capital - Australia - charges ahead."

Dr Cullen said the Government was already addressing the issues raised in the report.