Lack of detail whets tax cut appetite

By Audrey Young

National's credibility would have been threatened if the Budget had promised a tax cut three years out, says Treasurer Bill Birch.

And his heir, Bill English, says that not delivering tax cuts has widened their appeal.

The pair were speaking at a breakfast Budget seminar in Wellington yesterday hosted by the Business Herald, Bell Gully and Bankers Trust/Deutsche Bank AG.

"It simply wasn't credible to be precise about tax cuts," Mr Birch said.

He could have said that with surpluses of $1.5 billion in the third year and good strong growth forecasts, company tax and the top personal rate could be cut to 30c. That would have cost $800 million and still left a respectable surplus.

"But how credible was the promise of tax cuts three years out?" he said.

National wanted to be more confident about the recovery and confidence-building before being precise.

It had been a prudent Budget, but its tight parameters were set back in October last year "right at the depth of uncertainty" about the economy.

Mr English, who becomes Treasurer on July 1, said National's commitment to lower taxes should not be doubted. "If anything, we've been pleasantly surprised at the fact that expectations in the Budget about tax cuts weren't met has whetted the wider appetite around lower taxes in a way that simply wasn't there two or three years ago.

"I give Bill Birch credit for shifting the ground on the tax debate in New Zealand."

Bankers Trust economist Stephen Toplis told the meeting that the Budget had to be seen in a political perspective. Making promises to business was not a way to win elections, he said.

"Making promises of tax cuts to high income-earners and businesses is not a good way to win elections. Focusing on economic purity and micro-reform is also not a good way to win election.

"Winning elections is probably about getting the middle-class voter to support your Government."