KEY POINTS:
Finance Minister Michael Cullen is again under fire over his resistance to personal tax cuts, with attacks coming from not just the National Party but also much closer to the Government.
United Future's revenue spokesman Gordon Copeland - an MP in Revenue Minister Peter Dunne's party - yesterday
launched a surprise attack on Dr Cullen's stance on personal tax.
Mr Copeland criticised the "failure of the Labour-led Government" to address bracket creep, which sees taxpayers edge up into higher tax brackets because the tax thresholds are not adjusted for inflation.
A study released yesterday by the Centre For Independent Studies showed that static tax thresholds meant more than 12 per cent of earners were now paying the top 39c rate, compared with 5 per cent in 2000.
"The present lopsided approach is both unfair and inequitable and explains why all those who do not qualify for the Working For Families package are continuing to see the purchasing power of their after-tax income eroded year in and year out," Mr Copeland said.
He argued that the threshold adjustments Dr Cullen announced in 2005 would not go anywhere near addressing the actual rate of inflation.
Mr Copeland's attack has raised eyebrows because it comes as Dr Cullen prepares to unveil a Budget which Mr Dunne has been closely involved with. The move could be read as a sign that United Future is disappointed that the Budget will not include the personal tax cuts it has openly pushed for.
Personal tax cuts have been ruled out of tomorrow's Budget, although Dr Cullen has indicated he may next year outline a long-term plan for them.
His resistance to cuts drew fire from the National Party yesterday, but Dr Cullen strongly defended his position.
National leader John Key accused the Government of considering tax cuts next year only because it was an election year, while arguing any other time that they were unaffordable and inflationary.
Dr Cullen shot back by saying that now was not a good time for substantial tax cuts, and he pointed again to surging retail sales as evidence of excessive demand, which would be further fuelled by tax cuts.
Mr Key reminded Dr Cullen of his previously stated reasons for not giving tax cuts.
"You can't have a tax cut when the surplus is small because you can't afford it, you can't have a tax cut when the surplus is big because ... there's no correlation between the two and you can't have a tax cut when there's a threat of inflation," Mr Key said.
"In fact the only time you can have a tax cut is obviously when you're behind in the polls."
Dr Cullen has argued that tax cuts would be inflationary and put pressure on already high interest rates.
New Zealand First leader Winston Peters also drew a link this week between immigration and higher interest rates, arguing that migrants were contributing to rising rates.
Yesterday Immigration Minister David Cunliffe used a speech to directly address Mr Peters' attack and defend the Government's immigration policy.
The impact of immigration on inflation was "likely to be relatively small", because although up to 52,000 migrants could enter during a year, many New Zealanders left.
The net inflow was more like 12,000 people, he said, and without immigration there would be an "economically unsustainable net loss of people".
Bracket Creep
* In 2000 the 39c income tax rate applied to the top 5 per cent of earners.
* Today, with the threshold still at $60,000, more than 12 per cent of earners pay it.
* The "chewing gum" threshold changes outlined in 2005 by the Government would take the top threshold to $63,372 if they went ahead as planned.
* United Future's Gordon Copeland argues that cumulative inflation since 2000 is about 22.6 per cent. To keep up with inflation, he wants the top tax threshold to be raised to $73,560.