Fate of tax cuts awaits the Budget

Income earners are likely to have a two-month wait to hear whether future tax cuts are to go ahead.

Finance Minister Bill English yesterday said he expected to "give a signal" about whether tax cuts planned for 2010 and 2011 would be possible when he delivers his Budget on May 28.

"We won't shift from the position that we're keen to see lower taxes, but we will have to make a judgment about their affordability over the next four years."

The future of the tax cuts has been in doubt since early this year, when Prime Minister John Key refused to confirm they would go ahead, despite campaigning on the issue.

The first instalment of National's three-year programme begins today - and includes a $10 independent earners' credit for lower income earners and about $18.50 a week for those earning between $50,000 and $70,000.

Further tax cuts in 2010 and 2011 would see the top tax rate decrease to 37 per cent, and the income level at which the 33 per cent rate begins raised to $50,000.

Mr English said a final decision on the affordability of future tax cuts would depend on the economic outlook.

"Some people are now saying it will pick up a bit sooner. That would be nice. Others are saying it's going to get worse again - let's see. There's so much economic uncertainty we have to be careful."

He said the Government was still "very keen" to lower taxes further, but it needed to keep its books correctly to maintain public services and entitlements.

The tax cuts issue put Act's Sir Roger Douglas in the rare position of being applauded by Labour MPs when he queried the wisdom of Government borrowing for tax cuts.

In Parliament, he asked Mr English to explain how "borrowing $1 billion from some New Zealanders to finance tax cuts worth $1 billion to other New Zealanders will create a net gain for the average New Zealander".

Act supports a top personal tax rate of 15 per cent - and Mr English said National believed lower taxes were the right policy in the longer term.

Sir Roger said interest charges meant tax cuts funded by borrowing that cost $1 billion a year would cost $1.4 billion a year after five years.

Meanwhile, an Inland Revenue Department advertisement for the new independent earners' tax credit came under fire in Parliament yesterday.

Labour's deputy leader, Annette King, said National was using the government department for political reasons.

Mr Key said the Government had selected the least expensive campaign - a four-week programme of advertisements in print and online costing $600,000.

By comparison, he said, the previous Government had spent $21.5 million on advertising for Working for Families.