With GST, National has sought to limit Labour's tax options

Bill English may be the only one with his name on the front cover of Thursday's Budget. But what lies between the document's dark-blue covers also bears the invisible, yet indelible hallmark of John Key.

It is the imprint of the risk-taker prepared to up the stakes considerably in order to secure an even bigger payout when he wins.

English has been praised for the Budget being unusually bold by his cautious standards.

Putting aside the question of whether the Budget is as bold as it could have been, English would have been firmly prodded in that direction by Key determining it was the right time for National to make a big play in the political marketplace.

In terms of scale, the Budget's centrepiece package of tax cuts has National betting heavily on the economy continuing its slow recovery and not being hit by another international shock which plunges it back into recession, once more mangling the Government accounts and further delaying a return to surpluses.

That is just the sort of calculated gamble that would be second nature for a former forex dealer like Key.

He has effectively wagered National's reputation as a responsible fiscal manager on the expectation that there will not be another bout of global financial dysfunction, thereby securing a big dividend in votes at next year's general election.

The gamble seems to have paid off - at least so far. Although highly unscientific, a TV One-Close Up poll on Thursday night provided a thumping endorsement of National's tax package and other measures unveiled that afternoon.

That result was replicated in a similarly unscientific Herald online poll yesterday with those considering the Budget a winner running at nearly three to one.

It is unusual for modern Budgets to capture the public's attention in the way this one has - especially as most of its content had been well-signalled in advance.

One reason for that is that though Labour and the Greens argue the tax cuts fail Key's test of fairness, most people clearly feel it is fair to them, especially with wage rises being so niggardly.

There also seems to be a strong public consensus in favour of the Budget's limited crackdown on tax breaks, tax loopholes and tax avoidance mechanisms.

More significantly perhaps, Key confounded the critics by keeping his word that no one would be worse off as a result of the tax changes.

That came at the cost, however, of the package being significantly more than the kind of numbers being bandied around when he officially flagged the tax cuts in the Prime Minister's statement to Parliament back in February.

What was initially suggested would be around the $2 billion mark has ended up being more than twice that.

That was the price of getting meaningful cuts at the bottom end of the tax scale so National could escape charges that it was neglecting the poor. It was the price of getting even juicier cuts in the middle-income band where a significant bulk of votes lie.

The upshot is that National is effectively borrowing for tax cuts - at least in the initial stages because the depreciation changes and other revenue-raising or -saving measures on the other side of the ledger take a while to kick in.

But there has been barely a squeal from fiscal purists about that. In fact, there has hardly been any squealing about the Budget as a whole - even from those who have been hit in the wallet by the closing off of tax deductions for depreciation on buildings and plant and equipment.

There has also been little adverse comment on the Budget's failure - bar the cut in company tax - to bring forward other new, bright ideas for quickly and substantially lifting New Zealand's economic performance which National keeps promising.

Those crying out for National to make the "tough" decisions needed to grow the economy are strangely silent.

English and Key argue that the tax changes themselves are a major economic instrument which will have multiple impacts.

First, the cuts will be a big incentive to keep young and highly qualified New Zealanders from migrating elsewhere.

Second, that the tax "switch" to paying more indirect tax will reduce the consumption patterns of New Zealand's debt-ridden households and boost enterprise-creating savings. Third, stimulatory tax cuts will lift economic growth.

On the last score, the Treasury has warned of "significant uncertainty" as to the economic impact of the tax package. It cautiously assessed that the package might result in growth of less than 1 per cent after seven years - hardly Asian tiger stuff.

The Treasury went on to say only around 10,000 of the 174,000 jobs expected to be created over the next three years or so would be attributable to tax cuts.

Apart from likewise asking what is going to generate Key's promised economic "step-change", Labour believes National is enjoying what will turn out to be only temporary largesse from its tax cuts. It cites a string of pending price rises which will see inflation spiking sharply upwards.

It notes the possibility of the euro debt crisis creating further turbulence in international financial markets which could engender another wave of global recession. There are worries about the Chinese economy - now New Zealand's second-biggest export market.

Were New Zealand to plunge back into recession, the wisdom of tax cuts would come under question even though National's will supposedly be self-funding.

That self-funding is by virtue of the introduction of the measures curbing tax breaks on rental properties, depreciation and so forth. The Government is relying on estimates by Inland Revenue and the Treasury of how much those measures will raise in terms of hard cash being accurate. National will be acutely embarrassed if those estimates are skew-whiff.

Labour also believes National has left it room to raise the 33 cent tax rate back to 38 per cent on income earned above $100,000 (or an even higher threshold) which it would redistribute by way of cuts at lower levels. Labour was smart in laying out that position before the Budget so it could not be accused of simply being reactive.

In raising GST to give itself room for bigger tax cuts, National had sought to limit Labour's tax options in the belief Labour would not be able to find the revenue needed to make up for lowering GST.

That may well turn out to be the case and GST stays at 15 per cent. But Labour is hanging in there. It is not going to allow National to make all the running on something as vital as tax. It simply cannot afford to do so.