KEY POINTS:
The Government has abandoned its plan to introduce tax credits for export market development, fuelling speculation about what sort of boost it is planning for struggling exporters.
Finance Minister Michael Cullen yesterday used his pre-Budget speech to hint that the Government's accounts were in better shape than predicted in December's half-year fiscal update.
The unexpected strength of the economic recovery meant tax revenues were higher than predicted, and the Government was "still running a large cash surplus", he said.
But Dr Cullen also warned that New Zealand faced "very significant challenges", only some of which could be dealt with in the May 17 Budget.
Exporters were taking too much of the strain of monetary policy, he said.
The plight of exporters battling a strong New Zealand dollar hit the headlines last week when iconic local firm Fisher & Paykel Appliances announced it would move some manufacturing to Thailand, with the likely loss of 350 jobs.
The Government's much-anticipated $1 billion business tax package is expected to provide some relief, with a likely cut in the corporate tax rate to 30 per cent from 33 per cent.
There will also be something else to help exporters, but Dr Cullen made it clear it would not be tax credits. "However, we will strongly target skills and exporting in the Budget."
Tax credits for research and development were still on the table.
Dr Cullen's about-face on the tax credits yesterday drew a sharp response from National's finance spokesman, Bill English, who said the Budget seemed to be in a mess. He pointed to a report last week in which Prime Minister Helen Clark said it would include tax credits.
"But today, with the Budget about to go to the printer, Dr Cullen ditches them," Mr English said.
National has argued against the tax credits, and Mr English said they were no great loss. He said the credits could be very expensive and were unpopular even in the business community.
But Mr English said their removal lent weight to rumours that the Government may instead offer a lower tax rate on export income.
Dr Cullen's office would not be drawn into speculation on what was coming, but said the decision to abandon some of the tax credits was not a late move as described by Mr English.
