Personal tax cuts are affordable, Finance Minister Michael Cullen said today.
Papers released under the Official Information Act to Radio New Zealand showed the Government considered delivering $1 billion in personal tax cuts in the May budget, but shelved the plan due to fears it would fuel inflation.
Dr Cullen yesterday said that figure gave little indication of what tax cuts might be considered next year as the Government still had to consider inflation that was forecast to be at the high end of the Reserve Bank's target range.
However, Dr Cullen acknowledged today that tax cuts were affordable, but said the Government must consider their effects on inflation.
"While there is fiscal headroom, in other words there is sufficient room to reduce government surpluses, we still have the problem of inflationary pressures and the economy operating at near capacity," he said on Radio New Zealand.
Dr Cullen said any cuts were likely to be modest and introduced over time rather than the $2.5 billion a year "big bang" that National put forward at the past election.
"I don't think people should expect anything in the way of big lolly scrambles and indeed it's only at very preliminary stages at this point considering what the shape of tax cuts may be if they come in."
If he did deliver tax cuts he wanted the benefits to flow evenly across the board rather than benefit the more well off.
Due to inflation concerns he was already giving ministers the message that there couldn't be "large expansive spending programmes" in next year's budget.
Yesterday Dr Cullen said there were a number of options open to the Government including lifting thresholds, modest tax cuts across the board, or more targeted cuts.
He said last year tax cuts had been ruled out early in the budget process and no specific options had been considered by ministers.
"There was only a general consideration of the possibility of personal tax cuts, but ... concerns around the inflationary impact really ruled that out."
Early in the budget round, the emphasis moved to increasing savings through KiwiSaver.
In the end there were no new personal tax cuts in the budget and previously announced small ones that were to take effect next year were scrapped.
Instead Dr Cullen turbo charged the KiwiSaver scheme at a cost of $1.2 billion a year by 2011.
- NZPA
