Government quick to deflect tax cut calls

By KEVIN TAYLOR, political reporter

The Government withstood a barrage of questions yesterday as the Budget's centrepiece Working for Families package dominated the first question-time in Parliament since the Budget.

Prime Minister Helen Clark and Finance Minister Michael Cullen rejected claims that the package would prompt higher-income earners to not work as hard or do overtime.

They also attacked calls by National and Act for tax cuts, arguing that Labour's way delivered more to families more cost-effectively than broadbrush tax cuts would.

Dr Cullen said a family with four children on $55,000 would get $149.77 more when the income-boosting package was fully in place in 2007.

To get the same benefit from a flat tax would require a rate of about 9.5 per cent and cost $15.9 billion a year.

The cost would mean no operating spending on many areas of Government expenditure including health, law and order, defence, transport and communications, and housing and community development and "would still leave a gap of a couple of hundred million dollars or so".

National deputy finance spokesman John Key produced figures showing the net income of poorer and richer families would narrow dramatically as the package took effect.

The figures showed the effect of high effective marginal tax rates on two one-income families with two parents and two young children living in South or West Auckland, one earning $38,000 gross and one earning $60,000 gross.

At present the gap in net income is $9266 after tax and ACC levies are deducted, and family assistance and accommodation supplement payments are added. By 2007 the gap will narrow to just $2376.

Mr Key said the effect of high marginal tax rates would be that higher-income earners would have less incentive to work harder.

Helen Clark said there was no evidence high marginal tax rates would cause people "not to go to work".

Opposition MPs also attacked the Government over the plan to spend $21 million promoting the Budget.

They jumped on Helen Clark's 1993 criticism of a $2.5 million National advertising campaign promoting hospital restructuring as an "orgy of advertising".

Dr Cullen said the 1993 campaign was a "pure propaganda campaign" promoting plans to charge patients.

The Budget campaign was being done to ensure people got their entitlements.