Key Points:

Labour is dipping into taxpayers' money to produce leaflets on the May Budget - 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.

Labour's A4 folded, coloured leaflet is titled "A fair economy for a strong future". It is being distributed throughout the country, within the new regulated period that started on January 1.

Labour spent large sums in the 2005 election on its pledge card and a large fold-out brochure. That material formed the bulk of the $824,000 of unlawful expenditure billed to Parliament by the party last election and which Labour repaid after the Auditor-General's report.

The difference now is that the law has been changed to make such expenditure on election ads legal for parties in Parliament, and no one will be required to reimburse the public purse.

The Budget leaflet is more likely to cost tens of thousands of dollars, rather than the pledge card's hundreds of thousands. But Labour yesterday refused to give any details about the cost to taxpayers or how many it has produced.

"The Budget leaflet is funded from Parliamentary Services," a spokeswoman for Prime Minister Helen Clark said. "It is authorised. Costings will not be released at this stage."

The leaflet has a parliamentary crest on it, denoting it is funded publicly, and it has been authorised by Labour's general secretary, Mike Smith, a requirement for election advertisements from January 1 in election year.

The leaflet does not breach Parliament's own spending laws because they have been liberalised and it does not breach the Electoral Finance Act because it is authorised.

But there may be a post-election sting in it for Labour.

The party will almost certainly have to declare the leaflet in its election expenses return to the Electoral Commission and deduct its cost from its $2.4 million cap.

Wellington electoral law specialist Graeme Edgeler said last night the leaflet met the definition of election advertisement under the Electoral Finance Act.

"It doesn't say vote Labour, but that is the clear implication."

It had party colours, the Labour logo, and the party's tax-cut promises this year and in the future.

He did not believe it could be considered under the exception given to an MP producing material in their capacity as MP. "This is a Labour Party promotional leaflet."

It was "almost certainly" an election advertisement and as such should be declared in the party's expenses.

Apart from broadcasting allocations, parties' declared expenses are expected to be paid for privately, not by taxpayers.

Mr Edgeler also said that under the new law, the cost of the leaflet might have to be declared as an election donation by the Parliamentary Service to the Labour Party.

"If I gave the Labour Party $30,000 worth of leaflets it would be a donation - just as if they printed off $30,000 worth and sent me the bill and I paid it, that would be a donation.

"I really don't see the difference between them sending a bill to me, or getting the leaflets from me, and them sending the bill to the Parliamentary Service or getting the leaflets from the Parliamentary Service."

That was not how Labour intended the act to operate and would be another big embarrassment for it.