KEY POINTS:
Finance Minister Michael Cullen sought Cabinet's approval just a month before the May Budget to cancel its previous "chewing gum" promise to adjust income tax thresholds - the only tax cut he has promised in eight Budgets.
But he told the Cabinet that adjustments would be reinstated after 2011 - though perhaps not fully adjusted for inflation.
Dr Cullen said in his final paper to Cabinet on April 19 that the Budget had committed more money than had been signalled in the Budget policy statement and that adjustments to the Budget might be needed. The information is contained in Cabinet papers that were posted on Treasury's website yesterday.
Dr Cullen wanted authority for himself, Prime Minister Helen Clark and Associate Finance Minister Trevor Mallard to cut the operating Budget allowance by between $50 million and $100 million before Budget day. In the papers there is also a proposal "to rescind our previous decision to adjust income tax thresholds on a three-yearly basis".
"Within the protection period (ie. from 2011-12 onwards) we will adjust the tax thresholds for inflation, but some portion of fiscal drag might need to be retained to finance our decisions."
Dr Cullen promised in the 2005 Budget to introduce inflation-adjustments to tax thresholds in 2008 and for adjustments to take place every three years.
The lower paid would have benefited by only 67c a week. After an outcry, the cuts were dubbed the "chewing gum" tax cuts because that was all 67c was deemed to buy.
Stung by the backlash - which almost saw Labour lose the election four months after the 2005 Budget - Dr Cullen frequently threatened to ditch the 2005 promise but never actually did until the Budget this year.
In doing so he saved the estimated cost of the adjustment in its first year of $395 million, $425 million the next year and $535 million the year after.
The Cabinet papers noted that the capital and operating allowances were already "significantly overspent" (around $300 million for operating ongoing, and around $1 billion in capital), which could be partially offset by removing the indexation of personal income tax thresholds.
