KEY POINTS:
The promise of another round of big personal tax cuts in Australia has put the heat back on Finance Minister Michael Cullen, but he is warning that New Zealand's capacity to deliver cuts is smaller than across the Tasman.
In a clear bid to woo voters in Australia's November election, Prime Minister John Howard and Treasurer Peter Costello yesterday surprised on the first day of campaigning with a dramatic A$34 billion ($40 billion) plan to restructure personal taxes to lower levels over the next three years.
To get the cuts Australian voters will have to return Mr Howard to power, and opinion polling at the moment suggests that is unlikely.
But that didn't stop the National Party in New Zealand from seizing on the tax cut plan to renew calls that this country risks "being left in the dust" by Australia's gradual tax reductions.
"Since 2000 Australia has been increasing personal income tax thresholds and has reduced some personal income tax rates," National's deputy leader Bill English said.
"In New Zealand Dr Cullen has hoarded surpluses to buy votes and cancelled the only tax cuts he ever promised - the 'chewing gum' tax changes."
Mr English warned that more New Zealanders would leave to live and work in Australia if Mr Howard's plan came to fruition.
Dr Cullen has clearly signalled he will address the issue in next year's Budget, after last week unveiling an operating surplus for the 2006/07 financial year of $8.7 billion.
Yesterday Dr Cullen had little to say about Mr Howard's election promise, other than to point out that it favoured richer people.
He said there was nothing in the package for those earning under $30,000 a year and just $20 a week for those earning up to $74,000 a year, but a $128 a week cut for those on $200,000.
"Not the kind of programme you would expect to see from a Labour-led Government," Dr Cullen said.
He later told reporters that the Australian Government had increased its Budget surplus forecasts by $70 billion since its Budget in May.
"That dwarfs our updated forecasts even taking into account the size of the two different economies."
Labour fought hard against National's big tax cut plans in the 2005 election campaign, and the issue is looming as an important one again in next year's campaign.
Dr Cullen is wary of the inflationary effects of cuts and has regularly stated that nobody would thank him for giving a tax cut if the money was then taken back through higher interest rates.
But the inflation argument is being viewed differently across the Tasman, where the Government has pushed the idea that tax cuts will encourage more people to work and therefore remove some inflationary pressure generated by constraints in the labour market.
Mr English said National remained committed to a credible programme of phased tax cuts, which following last week's surplus announcement were clearly affordable.
