John Armstrong: Losing tax debate, lost cool

To the list of great conspiracy theories - the plot to kill Princess Diana, the faking of the Apollo moon landings and the poisoning of the water supply with fluoride - add Michael Cullen's belief that press gallery journalists are running personal agendas in favour of tax cuts.

His temper was not the only thing the Finance Minister lost during his angry exchange with TVNZ's political editor Guyon Espiner.

In resorting to the ridiculous, Cullen only succeeded in showing just how much he is losing the argument over tax.

Cullen won't say whether he still thinks journalists are biased in favour of tax cuts. That has become a no-go zone for obvious reasons.

Losing your cool on national television suggests you're losing control.

Moreover, a third-term Government sitting on a knife-edge majority and fraying at the edges as various backbenchers threaten to resign has nothing to gain by declaring war on the media.

The good news for Labour is that Cullen's rage was not on display while Parliament was sitting. National will get its first chance to mock him in person next Tuesday - the best part of two weeks since the damaging footage was screened on One News.

The other positive is Cullen has had the intervening period to take a breather and rethink how to frame the tax cut debate more to Labour's advantage.

Not that this was immediately obvious from his speeches this week which saw him return to the subject when others might have given it a rest.

If anything, Cullen is likely to increase the ferocity of his offensive against National, not least because National has responded by distributing some 760,000 postcards promoting tax cuts into letterboxes in the main metropolitan centres.

Tax is fundamental. Labour cannot allow National's stance on tax cuts to become the orthodox view so early in the electoral cycle, especially as last month's Budget achieved exactly the opposite of what it was intended to do.

The findings of a post-Budget One News-Colmar Brunton poll showed a clear majority now believe tax cuts are affordable despite Cullen's doom-laden warnings to the contrary.

But that does not mean a majority necessarily want them. The poll backed Cullen in finding most respondents put a priority on government spending on health, roading and superannuation ahead of tax cuts.

Cullen has to stop fighting a losing battle on the affordability of tax cuts and shift the argument more emphatically to the desirability of large-scale ones in terms of accompanying trade-offs.

When he says tax cuts are not affordable, he comes across as being opposed to them in principle. He insists that he is not saying it is not possible to have tax cuts. The trouble is he sounds very much like he does.

This is a big problem for Labour. The party will want to go into the next election having put some money back in taxpayers' pockets by increasing the income thresholds at which the 33c and 39c rates take effect, if only to blunt the impact of National's inevitably more generous package of proposals.

The only thing worse than not reducing tax in some way will be a Finance Minister displaying his reluctance at having done so. The spin-offs for Labour from the cuts will be reduced accordingly. As it is, Labour is already struggling with consistency.

Labour indulged in the short-term pragmatism of extending its Working for Families programme into higher income brackets prior to last year's election to lure middle New Zealand away from what National was offering.

The long-term price of that pragmatism is to leave Labour struggling to explain why a family on $100,000 should get tax relief while those without children on the same salary miss out.

Labour's argument that it is better to target assistance to the needy than give across-the-board cuts to all starts to fall apart at that point.

But when it comes to consistency, Cullen is all over the shop. This week he coined the term "prudence fatigue" - the tendency to splurge after five or six years of financial discipline.

Repeating his familiar warnings about spending all the gains on the economic upswing, he said it was "a hard discipline to leave windfall gains where they lie".

Indeed it is. No sooner had Labour discovered the windfall of corporate tax revenue in the pre-election fiscal update than it had spent it on extending Working for Families.

The election won, Cullen is back to recasting himself as the model of fiscal rectitude and asserting tax cuts would be irresponsible given the forecast cash deficits of the next few years.

Unfortunately for him, the Treasury has undermined his case, both in calling for tax cuts and then delivering the bumper surpluses which make his warnings sound like he is continually crying wolf.

However, Cullen's motives for portraying himself as the guardian of the national accounts go deeper.

What he has really been trying to do with all the talk about fiscal responsibility is convince people that large tax cuts are impossible - thus intimating National has no right to deploy its prime electoral weapon.

He has failed. But it was always mission impossible.

At the end of the day, National can cut taxes if it wants.

The question is what kind of trade-offs are involved in terms of Government spending.

National's postcard indicates that party knows it is vulnerable on that score.

Its soothing language tries to reassure voters there will be no swingeing cuts without alluding to the possibility.

National would "prioritise spending carefully"and "borrow wisely" to pay for roads and other major projects, while still providing the "first class services we all want".

Cullen's job is to rip holes in this patter. Without the detail of how National will restructure last year's election packages in the differing fiscal circumstances of the 2008 election, that job is more difficult. National will keep things deliberately vague for as long as it can.

Cullen does have advantages. National knows constructing its tax policy is going to be trickier next time. It may have to offer less than last year. And if Cullen adjusts tax thresholds in meaningful fashion, National will have even less flexibility. But will he?

Cullen this week likened media coverage of the tax debate to an extended soap opera in which the reluctant male lead must overcome his obsession with prudence and restraint and eventually come to embrace tax cuts.

He is right. He is probably going to have to embrace tax cuts in some form.

Not because journalists want him to, but because his colleagues will be relying on him doing so to save their electoral necks.