Trevett previews budget

Claire Trevett previews the budget issues:

Yet far from being the party’s salvation, this Budget – with expectations riding almost impossibly high – could well be Dr Cullen’s Waterloo. Dr Cullen has drunk from the cup of parsimony far too many times and Victoria University lecturer Jon Johansson said it had led to “an intractable negative perception” of him.

A political science lecturer, Mr Johansson doesn’t think it will matter which figure Dr Cullen pulls out of his hat tomorrow. “When you talk to people about Cullen there is real intensity and negativity. I think he is Labour’s biggest liability.”

I think this is right. In some ways it is unfair as Cullen is an incredibly competent Minister, he has generally resisted doing anything really harmful (like tinkering with the Reserve Bank Act, GST, Fiscal Responsibility Act), has presided over or benefited from eight years of strong economic growth and introduced some policies which will be long lasting – the Cullen Fund and KiwiSaver.

But his intransigence on personal tax rates has negated all that to a large segment of the public. If he had moved earlier on tax, then he might retire with bipartisan appreciation as having been one of NZ’s best Finance Ministers.

However you can’t run absolutely enormous surpluses year after year and refuse to lower tax rates, especially as inflation and bracket creep push people into paying more tax every year. Even worse you can’t announce tax cuts and then cancel them – even if they were small insignificant ones.

The problem for Dr Cullen now is that tomorrow’s tax cuts look insincere and grudging. I doubt a single person in NZ really thinks Dr Cullen wants to cut taxes as opposed to being forced to cut taxes.

Dr Claire Robinson, a political marketing specialist at Massey University, said Labour did not deliver what voters wanted in Budget ’07, and many had gone to National.

“There’s not much Labour can do in this Budget to lift itself from the doldrums. It will take a miracle to shift those voters back to Labour, and Michael Cullen doesn’t believe it is his role to deliver miracles.”

While Dr Cullen has been downplaying the size of his proposed three-year programme, National this week has been bandying about figures of $50 a week in a bid to ramp up the pressure on Cullen.

Mr Johansson and Dr Robinson said the public will be deaf to anything Labour has to offer or to arguments that National would be fiscally irresponsible to offer more.

I am confident National’s tax cuts will not be at all fiscally irresponsible. Bill English will not be delivering deficits in Government.

The bigger challenge for National will be the impact on inflation. However this can be over-stated, and one way to deal with this is to have a smaller reduction every year than one big reduction in one year. Also many people do understand that higher interest rates are temporary, while a reduction in tax is permament.C