KEY POINTS:
The Government planned to deliver $1 billion in personal tax cuts at the last budget, but shelved the plan due to fears it would fuel inflation, official papers show.
However, Finance Minister Michael Cullen said today the idea was ruled out early on in the Bidget process.
The papers, issued under the Official Information Act, show the Government last year considered a package of personal tax cuts that would have equalled the $1 billion it spent on business tax cuts, Radio New Zealand reported today.
Finance Minister Michael Cullen repeatedly said last year that planned business tax cuts would have a flow-on effect for some personal rates.
A $1 billion figure was speculated on, but Dr Cullen appeared to get cold feet early this year as domestic inflation remained high with Reserve Bank Governor Alan Bollard issuing several warnings.
In the end there were no new personal tax cuts in the budget and previously announced small ones that were to take effect next year were scrapped.
Instead Dr Cullen turbo charged the KiwiSaver scheme at a cost of $1.2 billion a year by 2011.
Dr Cullen said tax cuts had been ruled out early in the budget process and no specific options had been considered by ministers.
"There was only a general consideration of the possibility of personal tax cuts, but... concerns around the inflationary impact really ruled that out."
Early in the budget round, the emphasis moved to increasing savings through KiwiSaver.
The $1 billion figure had not been a specifically earmarked amount for cuts, it was just an idea of what may have been possible.
Prime Minister Helen Clark told reporters the Government had been looking at tax cuts but the decision was taken to put money into tax credits for Kiwisaver instead.
"Obviously that's been something we've been looking to address for some time but the decision was made not to stimulate inflation and to put the money into the Kiwi tax deductability of $20 personal rebate," she said.
It had been a collective decision by ministers.
One of the papers obtained by RNZ - from late last year as ministers were preparing budget bids - shows the Government planned at one stage to deliver $1 billion in business tax cuts, $1 billion in personal tax cuts and $200 million in international tax changes.
However, the paper did not give any detail of what form the cuts would have taken. Instead it gave the costs of changes to various rates and thresholds.
Around the time of this year's budget Dr Cullen said the Government's intentions in relation to personal tax cuts would be outlined in next year's budget.
- NZPA
