KEY POINTS:
Any Finance Minister but Michael Cullen might not have been able to contain his pleasure at the range of personal tax cuts he was to deliver yesterday. The relief they bring is broader than we dared expect from his demeanour before the Budget. All will gain from an
increase in incomes taxed at lower rates, and the "rich" - as he would call those paying the top rate - will see the threshold raised to $70,000 from October.
It is relief well overdue; even $70,000 is a modest income these days. The revenue he has harvested from rising incomes has been a major contributor to the surpluses that will drop now to a level designed to leave little to spare for the party in power next year. The cash balance will be in deficit after the required $2 billion contribution to the pension fund.
If National intends to deliver a larger tax cut next year - and it could surely raise the top rate threshold to $80,000 somewhat sooner than Dr Cullen's 2011 projection - it will need to find compensatory savings in expenditure or raise public debt higher than the level at which he has wisely maintained it. National's finance spokesman says the party would not borrow to cover tax cuts.
Yesterday's package represents a considerable economic stimulant and needs to be evaluated against the likely condition of the economy over the next year. If activity proves stronger than the Treasury predicts, the Budget will add to inflation and the Reserve Bank's antidotes will keep interest rates and the dollar higher than they should be.
The Treasury believes the economy is suffering more than it expected from the international credit crunch, the farm drought, low immigration, falling house prices and rising fuel and food costs. And the official forecasts look optimistic beside others. In this outlook Dr Cullen's grudging cuts look not just affordable but economically advisable.
Politically, he was obliged to reduce taxes in the face of National's challenge this year, and the obligation has limited Labour's room for election-year social spending. The extra $3 billion allocated to health is largely for projects already announced, and $2 billion merely compensated district boards for inflation.
Social services will see less than $500 million additional funding over four years.
Teachers' wage increases have accounted for most of the additional education money. Beside them, the 5 per cent lift in schools' operational funds looks insignificant, and the addition to early childhood rations is paltry.
Tax cuts dominate the fiscal design at long last. The Government should not have taken more than it needed from the economy for so long. Dr Cullen can point to nine consecutive years of growth, a record no other Finance Minister has enjoyed in his lifetime, but he would be hard pressed to explain how excess taxation contributed to it.
The money rightly belonged to the overtaxed all along. If they are less than grateful for relief that will come just weeks before the likely election date, they can be forgiven. Dr Cullen says Budgets can lose elections but not win them. The best this one can do for his Government is no further harm.