KEY POINTS:
"It would be a hard government," said Benjamin Franklin, "that should tax its people one-tenth part of their income." If the founding father of the new United States had met Dr Michael Cullen, he would have adjudged the Finance Minister, who presents his eighth Budget on Thursday, a
very hard man indeed.
For some time, in the interests of stable economic management, significant changes have been semaphored, if not announced, in advance of Budget night, and simply locked in place when the document is tabled. So it takes no great acumen to predict that this Budget will contain no change to personal tax rates.
A cut, from 33c to 30c, in the company rate and the likelihood that contributions to the KiwiSaver retirement savings scheme will be made tax-deductible hold out the prospect of some relief. But the Finance Minister, sitting on a larger-than-forecasted Government surplus ($6.5 billion at the end of February), has made it pretty plain that he will be maintaining his policy of not cutting marginal tax rates.
His implacability has attracted some unflattering comparisons with Australia, where Federal Treasurer Peter Costello on Tuesday unveiled changes to tax thresholds that will deliver tax cuts, particularly to low-income earners who will feel the effects as early as July. David Farrar at www.kiwiblog.co.nz has posted a chart showing that all Australians earning less than $250,000 will pay less tax than their New Zealand counterparts. More tellingly, it shows that someone on an "entry-level" wage of $20,000 keeps barely less than 82c in the dollar here and more than 93c there. The latest changes will result in a 40 per cent tax cut for those on low incomes and a 28 per cent reduction for those on the average wage.
The figures could do with some contextualising. Australians pay state and local taxes that make direct comparisons misleading; this is an election-year budget by an administration lagging in the polls; Australia, although running surpluses far lower than New Zealand's as a percentage of GDP, is sitting on a fortune in mineral wealth that will insulate it through the global economic downturn that is now generally expected; New Zealand faces a range of problems - in health, welfare, education and social infrastructure - that will cost money to fix and that money has to come from somewhere; and finally, although Treasury says tax cuts will boost economic growth, they are equally likely to increase inflationary pressure.
But all the number-crunching and crystal-ball-gazing can obscure the street-level truth of life in Godzone: middle New Zealand is struggling to make ends meet.
The fact that, as a nation, we are failing to deliver to the needy and disadvantaged on a whole number of levels is pretty widely accepted. But for hard-working, two-income Kiwi families up and down the country, trying to meet the rent or mortgage, pay the bills, fill the car with gas and put food on the table, it is hard and getting harder.
As Finance Minister, Cullen has been prudent and hard-headed in his stewardship of an economy that - more than many, and certainly more than Australia's - has been subject to the influence of international developments over which he has had no control.
His record, in terms of that surplus, speaks for itself. But his stony-faced opposition to personal income-tax cuts is now beginning to look like ideological hard-heartedness.
Much as he may wish it were not the case, the average New Zealander needs and deserves a tax cut - now. Next year, when it is likely to look like an election bribe, will be too late.
