KEY POINTS:
Fresh doubt has been cast on the possibility Labour will opt for early tax cuts in its election-year Budget, as Finance Minister Michael Cullen warily weighs the impact such a move could have on interest rates.
Speculation has grown in recent months that Labour - anxious to close a gap in the polls and to neutralise tax cuts as a political issue - might choose to announce tax cuts in the Budget that take effect as early as October 1.
But yesterday Dr Cullen appeared to suggest that would only raise interest rates and lead to more problems for those families who are already struggling to make ends meet.
"Tax cuts which will be announced in the Budget will provide some relief, but not necessarily quick relief and not huge relief," Dr Cullen said.
"If they're brought forward, and that creates problems for the Reserve Bank, we'll see interest rates pushed up early and that will hurt those people who have got big mortgages on their homes."
Both Dr Cullen and Prime Minister Helen Clark last night stressed that no decision had been made yet on the timing of the tax cuts.
But privately sources are indicating that an April 1 implementation date is far more likely than the October date that has been the centre of speculation. The decision will be made after Dr Cullen has viewed more data on the Government's revenue track and the economy, and it is likely he will say more about the timing of tax cuts in about a fortnight.
Politically, an October 1 implementation date could have been attractive for Labour because it would not only have put money into taxpayers' pockets at a time when many need it, but it would also have made life more difficult for National when it planned its own competing tax cut package.
It is possible the Government is now trying to make sure whatever tax cuts it does offer do not disappoint because expectations have run away on them.
But Dr Cullen has argued against National's previous tax cut plans partly because of their likely inflationary impact, and with the Reserve Bank still trying to strangle persistent inflation as the economy weakens, clearly there is real concern early tax cuts might at least hold interest rates higher for longer.
National Party leader John Key last night said Dr Cullen had "blown it" when it came to tax cuts.
"No Finance Minister in New Zealand's history has had more opportunity to cut taxes than Michael Cullen, and he's failed to maximise his opportunity over the last nine years," Mr Key said.
Asked if National would go ahead with tax cuts in October if it was in government in the current economic conditions, Mr Key said "the answer to that question is we would have already done it by now".
Mr Key also speculated that it was possible Labour had decided its best hope for re-election was an earlyelection.
If this was the case and an election was held earlier than October 1, then having tax cuts on that date would not really help Labour much.