KEY POINTS:
The Government is moving closer to the point where it has to make decisions about the nature and size of business and personal tax cuts, Revenue Minister Peter Dunne said yesterday.
The latest set of government accounts for the five months to November show the surplus continuing to
run ahead of forecast, at $3.48 billion, $625 million higher than forecast.
Treasury said the higher than expected revenue was mostly due to higher than expected investment income from sources including the New Zealand Superannuation Fund, with only $50 million of it coming from tax.
Finance Minister Michael Cullen said the higher than expected surplus was good news for the institutions involved as it increased their ability to offset future liabilities.
"However, it is important not to get too excited as there is not extra cash in the bank to spend today."
Residual cash available after paying for investments, contributions to the New Zealand Superannuation Fund and the purchase of assets was $0.72 billion, which was just below forecast.
Dr Cullen, Mr Dunne - who also leads United Future - and officials are working on the design of a business tax package for a Budget due in May and to be implemented in 2008. Mr Dunne said the latest data was another positive step on the path to tax cuts and more tax data is due out today.
"Reports from officials are due any day now and we have got the next few weeks during which we will be obviously moving to some decisions and starting to look at those in the shape of this year's Budget and getting legislation ready to come in for May," he said.
"Both the half year economic and fiscal update in December and the latest figures today are all part of the mix of figures we said we needed to have prior to final decisions being made."
Mr Dunne said he had always been of the view that the larger the surplus the greater the scope for cuts, but final numbers still had to be crunched.
"We have now pretty much got that information and it doesn't come as a great surprise; it has been pretty much in line with the way things were heading during the year."
The greatest difficulty for Mr Dunne and Dr Cullen is not how much tax the Government has taken in so far, but predictions for revenue in 2008 and beyond.
Inland Revenue and Treasury have different predictions about the future, with Treasury more conservative in how much tax will be taken in on current settings.
Mr Dunne agreed that the signals from Treasury late last year had been that they were moving closer to IRD's position.
"The sort of process review that goes on has ended up with that effect ... which is not unhelpful."
Officials spoken to by NZPA were still cautious and said it may be possible for the Government to delay decisions about the size of potential tax cuts until April when more data had been collected.
Ministers are looking at cutting the headline corporate rate as well as tax incentives for exporters and others.
Dr Cullen has said these changes will have flow-on effects for personal tax rates as dropping the rate will create more gaps between the threshold for personal and company tax rates.
He played down expectations last year, pointing out that even forgoing $1 billion revenue for personal tax cuts would not give most people around $10 a week more in their pockets.
Many believe Dr Cullen will look to change the thresholds at which people pay tax as well as index them for inflation.
- NZPA