Budget 2005: Big tax secret turns into damp squib

Finance Minister Michael Cullen delivered a slow-hatching Budget yesterday with such modest and distant rewards that it earned instant derision.

The "deep, dark secret" of the Budget, so described by Labour president Mike Williams, was seen as more like a deep, dark disappointment on the issue of tax thresholds.

Adjustments to the thresholds will not take effect until 2008 and anyone paying the 21c rate will benefit by only 67c a week.

New Zealand First leader Winston Peters said the dark secret over tax "was so dark no one could find it".

"Who would offer working-class New Zealanders a tax incentive of 67c - half a packet of chewing gum - in three years' time?"

The seemingly token tax measure has handed National an opportunity to draw stark differences between it and Labour before the election.

National Party leader Don Brash, who has yet to give details of his promised tax cuts, called the threshold adjustments trivial.

"We wait six years to have the Government accept the need for change in the thresholds - and then wait another three years before the changes take effect."

As well as the paltry 67c a week for low-income earners, average income earners will be better off by about $6 a week and those who pay the top rate, $10 a week.

Dr Cullen argued that the $366 million cost a year to the Government illustrated how a small change in income tax costs large amounts of money.

National could not promise significant tax cuts without significant cuts in expenditure and changes in debt-reduction goals, he said.

Dr Cullen aptly described yesterday's effort as a "long-term Budget, not a short-term one".

The controversy over the small, slow threshold movement overshadowed the Budget's centre-piece - the workplace savings scheme for retirement savings and first-home buyers.

Again it is almost two years away, the delay justified because of the administrative preparation involved.

All employers will be required to offer the scheme from 2007 and the Government will provide a $1000 sweetener for every account opened.

After three years, first-home buyers will be able to access their savings for a deposit on a house and receive a Government subsidy of between $3000 and $5000, but that will not be able to be accessed until 2010.

Dr Cullen said a Labour Government made no apologies for putting health and education spending ahead of tax cuts.

Prime Minister Helen Clark said her Government had never promised more than it could deliver "and we have delivered what we promised".

National's promise of billions in tax cuts was "voodoo economics".

Paying tribute to Dr Cullen's enormous influence in her Government, she referred to Labour being led by "Helen Clark and Michael Cullen".

The actual cash surplus (the money left over after all spending) for the financial year about to end is $2.4 billion, from a $5.8 billion operating balance.

But if Labour is returned at this year's general election it might not be able to refer again to successive surpluses.

The slowing economy and forecast growth of an average 2.5 per cent translates to virtually a break-even position forecast for the next year, followed by three years of deficits.

Key points

Tax
Modest cuts in three years

Super
$1000 grants for KiwiSavers

Housing
$5000 first-home grants

Tertiary education
500 scholarships of $3000

Roads
Extra $300 million

Business
Tax and depreciation relief