KEY POINTS:
Finance Minister Michael Cullen says his eighth budget on May 17 will be tight, with no new major spending or large tax cuts.
Dr Cullen told the finance select committee that monetary policy was predicted by many to become even tighter and he was wary of stimulating more
inflation.
"I am mindful that fiscal policy must continue to support monetary policy," Dr Cullen said.
"Excessive fiscal loosening through large scale tax cuts as advocated by National or major new spending initiatives would be irresponsible at this stage of the economic cycle."
During questioning Dr Cullen jousted with National's finance spokesman, Bill English, who said the Government's record of increased spending was causing inflation.
Dr Cullen said National was being hypocritical in that it advocated increased spending in individual portfolios, but cuts in overall spending when it came to general fiscal policy.
Dr Cullen said currently the budget contained $1.9 billion for new spending, but $750 million of that was allocated for health.
It also included $400 million in revenue from a proposed carbon charge that the Government has had to abandon due to a lack of parliamentary support.
This money would have to be found from elsewhere.
The budget currently incorporated the inflation indexing of tax thresholds in 2008, Dr Cullen said.
However, Dr Cullen said inflation had been higher than forecast when Treasury budgeted for indexation and keep up with inflation would add another $200m in cost.
The cuts were widely derided as the chewing gum tax cuts when announced in the 2005 budget and Dr Cullen refused to tell MPs whether they would still be implemented.
He said spending ministers would face a tight negotiation round as he also had to find money to meet supply and confidence deals with New Zealand First and United Future,
He confirmed $1 billion for the business tax package which will include cuts to the corporate rate and tax breaks for exporters.
Dr Cullen believed climate change policy initiatives announced in Prime Minister Helen Clark's statement to Parliament yesterday would have little impact in this year's budget, but would in future years.
- NZPA