Key Points:

Labour's Kiwi happy family photo, which this morning turned out to actually be American, can now be revealed to have already been used by the Australian government to portray fair dinkum Aussies.

Prime Minister Helen Clark earlier dismissed coverage of the American stock photo in a Labour party Budget pamphlet as a "storm in a tea cup".

Speaking at the Fieldays near Hamilton she indicated the issue was not worthy of her time and would not take any further questions.

But this afternoon it emerged the photo is being used by the Kevin Rudd government to publicise its affordable housing policy.

This morning the American photographer who took the happy family picture said he was surprised to learn that the Labour party in New Zealand was using it.

Photographer Justin Horrocks told nzherald.co.nz that the house in the background of the photo used to supposedly depict a Kiwi family is his house in Lake Stevens, Washington state.

The family are friends of his who he photographs for stock images that are posted on the iStockphoto website and have been used across the US.

"Under the circumstances, they'd be quite excited to hear it was used," Mr Horrocks said.

He said he has not been contacted by the Government about the image but was pleased to hear that it had been sent out around New Zealand.

"The relationship between photographer and client is kept mutually exclusive by iStockphoto," Mr Horrocks said.

He was surprised to hear the image had been used to advertise the Government's budget.

Mr Horrocks said similar images of the family have been used to advertise life style features in newspapers and as the stock image in picture frames.

"It appeals to families using a picture-perfect family of three," Mr Horrocks said.

The Labour Party has been contacted for comment this morning but has so far not returned phone calls.

The photo shows a couple with a young child outside a weatherboard house and costs about $20 to buy.

The key words associated with the photo on the iStockphoto.com website include "multi-ethnic group", "loving", "bonding" and "American".

The potentially embarrassing discovery was made by blogger Skinny - otherwise known as Linda Clark's partner Alan Doak - who contacted the Herald this morning.

One poster on Skinny's website notes that another photo of the same family has an American flag in it.

The picture is one of the most popular of Mr Horrocks' photos, having been downloaded 2619 times.

The Labour Party advert highlights the key points of last month's Budget under the heading "A fair economy for a strong future".

The pamphlet gives details of the tax cuts and increases to Working for Families coming into effect in October as well as funding for health, education, rail and broadband.

It includes a message from Prime Minister Helen Clark which says the Budget is aimed at families and individuals while protecting the economy.

Labour is dipping into taxpayers' money to produce the leaflets - publicity that is almost certainly election advertising under its new Electoral Finance Act and will have to be counted in its election expenses.

That means large sums of public money will again have gone towards a Labour election campaign.

The cost of the leaflet may also have to be declared as a donation by Parliament to the Labour Party under the troublesome new law, which is not how Labour intended it to work.