KEY POINTS:
Families with mortgages would gain more if interest rates kept falling than they would from planned tax cuts in next week's Budget, Finance Minister Michael Cullen said yesterday.
Dr Cullen gave little away in his traditional pre-Budget speech to Canterbury manufacturers, but he did appear to be lowering public expectations around the relief that struggling households will get through tax cuts to be announced on Thursday.
"I think people have to be realistic about what's affordable and sensible.
"Sensible in terms of current inflationary pressures, not wanting to see interest rates go back up again - they've just started to come down, we don't want to disturb that."
Some banks have in recent days adjusted mortgage rates down after an extended period of raising them.
Dr Cullen said although some people had small mortgages or didn't have one at all, for those that did, seeing interest rates come down was more important than the pressures of rising food or petrol prices.
"If you're sitting, say, in Auckland on a $400,000 mortgage, a 2 per cent drop in interest rates is $150, $160 a week or more," he said.
Tax cuts Dr Cullen will unveil next week will not be worth anywhere near that amount on a weekly basis.
Asked if he was worried the final figures might disappoint people, he said it was important not to raise expectations too far, because small numbers individually added up to very big numbers across all taxpayers.
The conundrum facing Dr Cullen was highlighted in Parliament during question time later in the day when Greens co-leader Jeanette Fitzsimons fired a pointed barb at Labour.
"Can the minister assure the House that if any tax cuts are given in next week's Budget, they will benefit low income earners and beneficiaries at least as much as higher income earners?" she asked. "If not, what the hell happened to the Labour Party?"
Standing in for Dr Cullen, Associate Finance Minister Trevor Mallard assured Ms Fitzsimons the tax cuts would be "fair".
The Government is under pressure to help people struggling with soaring food, mortgage, petrol and power costs in the Budget.
But while it is expected to do something, the Government is also having to contend with lower revenues itself as the economy weakens and people put their wallets away.
Dr Cullen revealed in his speech that the Budget would show Government revenue was down on forecasts.
And spending programmes for the years beyond the 2008/09 Budget year would be reduced, he said.
But Dr Cullen said the Treasury did not forecast a technical recession.
Besides tax cuts, the speech focused on reiterating Labour's achievements and acknowledging the economic challenges now facing the Beehive.
Dr Cullen said there was no silver bullet to fix the situation, but he outlined an intention to give "relief" to workers and show a commitment to "strong investment in infrastructure, public services and support".
He said it was not a time to stop investing when things slowed.
He also confirmed that a broadband announcement would be made in the Budget, although he hinted the Government's investment would be lower and done in a different manner to National's $1.5 billion plan to push a fibre network ahead.
He also talked about building on a skills strategy, and pumping an extra $750 million into health as promised.
