Tax cut debate could swing election result

Once National's keenly-anticipated tax cut package is revealed in full, brace for the debate to explode.

With Labour virtually isolated politically by its refusal to budge on cuts, National has clearly differentiated itself.

That political ground has been further fed by Finance Minister Michael Cullen's ill-received Budget announcement of a small increase in tax thresholds in 2008.

National's pointed billboards - Labour taxes, National cuts - reinforce the fact this election will be as much about tax as anything else.

But while those stark billboards give voters the slogans, they offer none of the detail needed to make an informed choice.

Quite what National plans shaving off personal tax rates is not yet known as the party holds off revealing its package until after the election date is revealed.

Internally, debate about when it should reveal all has finally been settled, with talk of National releasing its plans a maximum of three days after the election is announced.

All that is known so far is that National plans to cut taxes from April 1 and that company tax would fall from 33c to 30c at a cost of more than $600 million in lost revenue.

But it's when the full plan is out that the fur will fly.

Labour claims National will have to cut essential services such as health and education to fund cuts, and that they will feed inflation and therefore interest rates - putting fear into the mortgage belt.

So far that message has failed to resonate with voters. National is either just ahead or level with Labour in the polls as the Government has haemorrhaged support since May's Budget.

Labour increased the top tax rate from 33c to 39c when it came to power in 1999. At the time 95 per cent of taxpayers earned less than $60,000.

However, rising incomes have seen more people move into the top tax bracket, with 11 per cent now earning more than $60,000.

It appears more voters than ever are receptive to the tax cut message.

The tax take has risen steadily since 1999 - from $30.2 billion to a forecast $46 billion in the year to June 2005.

At the same time Dr Cullen has ratcheted up spending in areas the Government says were neglected in the 1990s - from health and education to defence and law and order. Core Crown spending has risen from $34.4 billion in 1999 to a forecast $45.3 billion in the year to June 2005.

Budget 2004 also added the Working for Families tax credit package and income assistance for low to middle income earners to the Government's programmes, at an annual cost by 2007 of $1.1 billion.

National meanwhile has plugged away on the message that a Labour Government equals higher taxes, and has accused it of "waste".

Its billboards play on that theme - citing hip-hop tours and bureaucrats as examples of waste.

Finance spokesman John Key said Labour had spent $3 billion on sub-degree tertiary courses over the last five years, and two-thirds of people had not completed them.

Labour will claim the "waste" is not waste at all but key areas of public spending - health, education, superannuation and law and order and all this will be in danger under a National government.

Whatever the arguments for and against, the health of the Government's books has fed public expectations of tax cuts. But the pressure will soon swing on to National to tell the public what it plans to do in detail - including who will benefit, by how much and what will suffer as a result.

National could struggle to match the expectations building around its tax cuts. As the reaction in the polls after Labour's Budget shows, voters don't take kindly to having their expectations dashed.

The big unknown is whether the dollar figure returned to people's wallets would be enough to persuade wavering voters to support National.

And even National's strategists question whether tax alone will really determine voters' final choice at the ballot box.