KEY POINTS:
Prime Minister Helen Clark has assured critics that Finance Minister Michael Cullen's preconditions for tax cuts will be met.
A coalition of business groups yesterday called on the Government to align the top personal tax rate with the company rate at 30 per cent.
Dr Cullen has resisted loud calls for personal tax cuts for several years, but has said he will unveil a "three-year plus" programme of tax cuts in this year's budget.
However, critics of Dr Cullen have repeatedly questioned his commitment to the cuts, suggesting he might use the four preconditions he has spelled out for tax cuts to scuttle the programme.
Those preconditions are that cuts do not boost inflation, increase inequality or lead to increased borrowing or reductions in key services.
But Miss Clark today said Dr Cullen's preconditions would not make cutting taxes impossible.
"They don't make them impossible, otherwise he would not be saying he is going to announce a programme of them," she said on NewstalkZB.
"I think the conditions will be met".
Asked if Dr Cullen had had to be "strongarmed" into offering tax cuts, Miss Clark said "he absolutely knows the time has come to make that announcement".
But Miss Clark said a balance had to be struck between tax cuts and spending in key areas such as health and education.
The tax cuts also needed to be "fair" so that people on low incomes were able to live with dignity.
The Business Roundtable, Chambers of Commerce, Federated Farmers and the Institute of Chartered Accountant yesterday said the cuts should be targeted at creating wealth, not at wealth redistribution.
The group said the cut to the company rate to 30 per cent announced in last year's budget was welcome, but a lower, flatter and simpler rate of taxation was needed now.
The current top rate of personal tax is 39 per cent for earnings above $60,000 with those earning above $38,000 paying 33 per cent.
The proposal by the business groups is unlikely to find favour with Dr Cullen as it would cost billions of dollars and put nothing in the pockets of low earners and little for those in the middle income bracket.
Dr Cullen has refused to say what shape his tax cut package would take, with speculation centring around a lift in the thresholds at which rates kick in, paying out a flat dividend to taxpayers or creating a tax-free threshold.
The business group said rate cuts were preferable to other options and they were affordable.
It estimated the Government could afford $2.5 billion in tax cuts spread over a few years by lowering increases in Government spending and borrowing for infrastructure spending.
- NZPA
