KEY POINTS:
Finance Minister Michael Cullen has crafted his ninth Budget with one eye firmly fixed on bolstering Labour's chances of winning the election and the other on skewing National's ability to do the same.
At yesterday's lockup in Parliament's Banquet Hall the old pro was at his cunning best.
The Cabinet had considered two tax-cutting packages in the run-up to the Budget. But the group of senior ministers that made the final decision had opted for a more prudent package because Treasury forecasts had shown tax revenues were decreasing as the economy tightened.
Cullen's projected a $10.6 billion programme of rolling tax cuts over a 3 1/2-year period.
The first round, which goes into effect on October 1, will put an extra $43 a week into the pockets of average families just weeks before this year's election. The final adjustment will come in the 2011 election year, pushing the amount such families can expect to retain to around $75 a week.
The Government has made a fine calculation by opting for the Plan B package, that Reserve Bank Governor Alan Bollard will be tempted to signal interest rate cuts. It's no accident that Cullen was spotted making a visit to the central bank before he gave his pre-Budget briefing to journalists at lunchtime.
Cullen's decision to spend $695 million on buying Tranz Rail scuppered any ability to fund a one-off social dividend from the 2007-08 surplus. The broadband investment is also prudent.
But he will plunge the Government well into the red in the 2008-09 fiscal year by posting a cash deficit of $3.5 billion (once contributions to NZ Super Fund and capital spending are taken into account) and increasing gross Government debt to fund the spend-up.
His contention is that the prudence he has shown over some nine years as Finance Minister has left the Government's accounts with plenty of headroom so he can now prime the economy at a time when international ructions and escalating food, fuel and interest costs have put immense pressure on household budgets.
Gross debt will expand in nominal terms. But as a percentage of GDP it will still trend around 20 per cent, if GDP grows at the 1.5 per cent rate Treasury has forecast for 2008-09. This could be a very big "if" indeed if the international economic climate gets worse.
Clearly if the boot had been on the other foot, Cullen would have been railing against the imprudent, irresponsible behaviour of a National government intent on bribing voters with their own money to win an election.
Whichever party forms a government after this year's election, it will still be faced with the likely need to reprioritise spending or take on more debt to underpin the tax-cutting programme - at least in the short term, until the dynamic effects of personal tax cuts kick into gear and push the cycle up again.
Cullen won't release for six weeks or so the Cabinet papers to illustrate just what are the upper limits of the Labour-led Government's tax ambitions.
This is a clever political stratagem.
The papers will no doubt show that the big-bang option that the Government has rejected will bear a remarkable resemblance to National's tax-cutting agenda. Cullen will then use the figures to beat up on National leader John Key and his finance spokesman Bill English for following a path that might jeopardise the economy.
It will be a spectacular nonsense, of course, but will sail over the heads of many people who will be spooked by Government warnings of interest-rate rises if National's path is followed.
What Cullen has done has forced Key and English to state by how much they are prepared to cut spending themselves to fund a more generous tax cuts programme - or how much extra debt they will take on board to bankroll their own election promises.
