KEY POINTS:
It was purely hypothetical but Finance Minister Michael Cullen yesterday hinted that something like $2 billion might be available for tax cuts.
Appearing before Parliament's finance and expenditure select committee, Dr Cullen reiterated that it would not be until next year's Budget that any decisions on the size, shape and timing of tax cuts were made.
But later he was pressed by National's finance spokesman Bill English on whether he really thought the only way you could cut taxes was to cut spending.
"At the moment I don't think that's true because Treasury's forecasts tell me that we have headroom that is ongoing over the four-year period for some moderate moves in the taxation area," Dr Cullen said.
"But they would be moderate moves because anything in the tax area is significantly costly. If you are talking $20 a week it is over $2 billion a year."
Previously he has talked, equally hypothetically, about $1 billion delivering just $10 a week if spread evenly among two million wage and salary earners.
He blamed a run of unexpected cash surpluses in recent years on the Treasury underestimating the strength of the economy and consequently tax revenue.
In six of the past seven years it had underestimated growth in nominal gross domestic product, an indicator of the tax base, by an average of 0.9 per cent.
In five of the six years before that, when National was in power, it had erred the other way, overestimating growth by an average of 1.5 per cent.
"A cynical person might suggest some sort of ideological bias in that," Dr Cullen said. "A better explanation is that their model overestimates growth during downturns and underestimates it in upturns."
The Government is to deliver its half-year economic and fiscal update - a sort of half-time score for the fiscal year - on December 18. But there would be a lot of uncertainty around the forecast numbers, Dr Cullen said.
Because of its importance as a consumer of other people's goods, if the US economy went into a nosedive next year there would be an impact in this part of the world even with the emergence of China as an alternative engine of growth.
Mr English argued it was silly to attribute Government borrowing to any single thing that cost it money - operating spending, capital spending or tax cuts.
The Government's gross debt had grown by $2 billion over the past year. Did that mean the Government had borrowed to fund tax credits for KiwiSaver? he asked.
Dr Cullen replied that if, relative to GDP, a Government's spending remained constant while its borrowing rose and its tax revenue fell, it could be said to be borrowing to fund tax cuts.
