KEY POINTS:
Finance Minister Michael Cullen yesterday put the acid on employers to do better in closing the wage gap with Australia rather than expecting tax cuts to do it.
Dr Cullen's confirmation of phased tax adjustments seeks to neutralise any electoral advantage National may have had with its long-held policy of an ongoing programme of personal tax cuts, as occurs in Australia.
But he reiterated that New Zealand's cuts would still have to meet a four-part test, which was seized upon by National to suggest that Dr Cullen has an out.
The details of the timing of tax cuts will be revealed in the May Budget and Dr Cullen said yesterday that a three-year plan would be locked into legislation passed before the election.
In his first major economic speech of the year, Dr Cullen said his Budget would lay out a tax-cuts programme "in relation to the next three-year term in office and the longer-term direction of change beyond that".
But Dr Cullen made it clear that he had had no overnight conversion to National's embracing of a tax-cuts policy.
"Labour will deliver tax cuts because it is fair. Money that we do not need to meet our obligations to New Zealanders should not be held indefinitely in crown accounts."
Speaking to the Auckland Chamber of Commerce, Dr Cullen did not pull his punches in pressing business to do more to match productivity increases with faster wage growth.
He said there had been a 15 per cent real increase in wage rates since 1999 "but we should be talking about how to drive faster wage increases while we raise productivity".
"Yes, we should aim to close the wage gap with Australia but we should do more than talk about cutting taxes to help us get there. The Government can only do so much - business must also pick up the challenge."
He expanded on those comments last night on Close Up, saying: "New Zealand business has got a responsibility for investing more in productivity."
Business had had tax cuts and benefited from changes to depreciation rules. Savings were improving with KiwiSaver and the Government was addressing telecommunication infrastructure.
"Those are things that will drive productivity. Business has got to come to the view that it has to invest more and not just seek cheap labour as a means of increasing its production."
December's working figure for tax cuts was a conservative $1.5 billion a year but Dr Cullen said decisions on the size and roll-out would not be made until much closer to the Budget.
His four conditions that tax cuts must meet are: no borrowing to pay for them; no cuts to services; that they will not exacerbate inflationary pressures; that they will not lead to greater inequality in society.
Employers and Manufacturers' Association chief Alasdair Thompson said the government needed to create an environment where business had the confidence to invest.
"I don't think this Government can really ... claim that it is overly business friendly. We have seen a heap of legislation passed which has heaped upon business greater compliance costs."
Business NZ chief executive Phil O'Reilly said: "The reason Australian businesses are capable of paying more than New Zealand businesses on the whole is because the Australian economy is more productive than New Zealand's, so it's a productivity issue."
THE BIG GAP
* In 2006 the average weekly earnings of fulltime workers in Australia ranged between NZ$1025 in Tasmania and NZ$1248 in Western Australia. New Zealand's averaged NZ$906.
* The wage gap has widened over time: In New Zealand, real wages grew on average 1.1 per cent each year from 1997 to 2006. Australian state real wage growth ranged from 1.3 per cent in Western Australia to 1.7 per cent in Tasmania.
