By Vernon Small
political reporter
The Government is struggling to keep alive slim hopes of a significant tax cut in the next three years. National is keen to fight the election on its preference for lower taxes, in contrast with Labour's pledge to lift personal tax on income above $60,000.
But Treasurer
Bill Birch has been forced to reach for a grab-bag of sources to breathe life into tax-cut prospects that on Budget-night numbers look unlikely.
Surpluses over the next three years are forecast to remain below the Treasury's "buffer" of 1.5 per cent of GDP, peaking at $1.5 billion in 2001-02.
Unless the numbers improve significantly in the Treasury's pre-election update, that would leave little room for cuts. A 3c drop in the top 33c personal and corporate rate would cost $800 million.
Labour economic spokesman Michael Cullen said that in any realistic sense, general tax cuts were off the agenda unless there were savage social spending cuts.
"This is supposed to be National's great election-year carrot. What we got was one small peel and a rather large compost heap," Dr Cullen said.
Mr Birch was adamant that National was still committed to tax cuts when economic conditions allowed. But he conceded that the Government might need to rely on reducing the $600 million-a-year allowance for new policy initiatives, cutting existing spending and making changes that improve the simplicity and effectiveness of the tax system.
The Government could trim up to $200 million from the amount set aside for new spending, giving it a cumulative $400 million on top of the $790 million surplus forecast for the 2001-02 year.
Bankers Trust analyst Nick Bennenbroek said the Government might be able to signal a greater likelihood of cuts after the Treasury's pre-election economic update.
Deutsche Bank chief economist Ulf Schoefisch said growth could be stronger than the Treasury's forecasts.
This would allow the Government to consider a tax cut as early as 2000-01 if it were re-elected.
