National ups ante over tax

By Patricia Herbert

economics editor

National yesterday raised the stakes in the taxation debate by giving its strongest signal yet that it will go into this year's election campaign promising further tax cuts.

The hint undermined Labour's attempt to declaw the tax issue by pledging that it would not introduce any tax increases beyond the announced 39c step on incomes over $60,000.

Prime Minister Jenny Shipley said the Government would flag its spending plans "and any tax cut intentions" in her prime ministerial statement to the House on February 16 and in the May Budget.

National remained committed to reducing the tax burden on New Zealanders as soon as conditions allowed - and the outlook going into next year was now looking a good deal better, she said.

Mrs Shipley made the comments after the Secretary to the Treasury, Dr Alan Bollard, and the Reserve Bank Governor, Dr Don Brash, told the cabinet that this year's projected Budget deficit was now likely to be converted into a small surplus.

The Prime Minister said she was still reserving her judgment on the following two years, but the Treasury thought its December central forecasts were too bleak and conditions would track closer to an "early rebound" scenario.

She would not be specific on what that might mean for taxes.

But the clear implication of her remarks was that the Government might be in a position to flag another round of cuts after 2000.

Mrs Shipley's political intention was to push Labour's tax assurances into the shade.

The party's finance spokesman, Michael Cullen, pledged yesterday that apart from the new 39c rate, the next Labour government would make "no other changes to personal tax rates, GST or company tax rates."

It would establish an independent panel to review the tax system but any recommendations developing from this, even if adopted by the Labour Party, would not be enacted until after the electorate had voted on them in the 2002 elections.

"That means that Labour will not be legislating for a general capital gains tax, estate duties or any other significant changes within the three-year term of the next Parliament."

Dr Cullen deliberately stopped short of stating that the proposed 39c limit would be non-negotiable with the Alliance, Labour's prospective coalition partner, saying it would depend on the parties' relative strengths.

He doubted, for example, that the Alliance would push hard for its tax policy over Labour's if - as on current polls - it polled only 7 per cent of the vote and Labour polled 44 per cent.

But the Alliance leader, Jim Anderton, challenged him to explain how, on the basis of a tax increase which would raise only about $330 million a year, Labour could hope "to meet the requirements in major areas like health, education, housing, employment and so on."

Dr Cullen said the extra money would not be enough to fund everything but to do anything Labour first had to get into power.

"To fix up all our social problems would cost billions of dollars but ... if we proposed to raise additional revenue of that amount, we would be ensuring we would not be in government with the chance to do it."

Pictured: Jenny Shipley.