A record breaking surplus has spurred calls for tax cuts, but despite being in the black to the tune of more than $11 billion, Finance Minister Michael Cullen says he still cannot commit to cutting taxes.
Government balance sheets have revealed a surplus of $11.5 billion, $2.5 billion more than forecast. Cullen says most of the unexpected money came from a one-off tax adjustment and the rest from income tax.
Political editor Barry Soper says it is difficult to be precise when forecasting, but the surplus is 35% more than forecast. He says you can probably put money on the fact that thresholds will move in time for election year in 2008.
The books are in better shape than forecast, largely because tax revenue is up by $500 million. Expenses are also down by about the same amount, partly because higher job rates mean fewer beneficiaries.
Take out accounting changes and re-valuations and you are left with about $8.5 billion. The government is choosing to spend that on the super fund and assets such as schools, as well as advances to commitments like student loans - leaving about $3 billion in cash.
The record surplus is expected to put increasing political pressure on the government to offer tax cuts.
In parliament on Wednesday National demanded the government apologise over the size of the surplus. Cullen was also quizzed by journalists whether the taxpayer can expect tax cuts amounting to more than half a packet of chewing gum in 2008.
Cullen says it is still not clear whether the good times will last, and coupled with fears about high inflation, large tax cuts would be irresponsible. "Caution is a little bit wise - it's very hard to give the tax cuts back once you've had them."
He insists it is not sustainable to give an across the board tax cuts to the majority of middle to low income taxpayers.
Labour and United Future already have a review of business tax rates underway but National and Act say the big surplus means the government can afford to cut personal rates as well.
Cullen has warned tax cuts are not easy to deliver and earlier said giving low and middle income earners about $10 a week each would cost $1.25 billion.
Prime Minister Helen Clark says they are a good set of accounts, but will not comment on whether tax cuts are an option.
She says you should not rush to conclusions off one set of accounts.
Clark says the broader macroeconomic environment has to be considered, and caution is warranted as analysts are constantly warning about the size of the current account deficit.
But National's finance spokesperson John Key says the surplus makes a mockery of claims made by Michael Cullen before the last election that tax cuts were unaffordable and would put at risk core primary services.
"This is just a massive surplus. It doesn't matter how you measure it - it's the largest in New Zealand's history and the second highest in the Western world. Only Norway has a larger surplus," he says.
He says when surpluses are this enormous, any veiled hope the government had that it is not overtaxing people will rapidly evaporate.
Key says the government is collecting too much revenue at a time New Zealanders are being forced to go without.
He says the surplus shows every man, woman and child has been overtaxed to the tune of $2,875 each.
Key says the figure also makes a mockery of Cullen's hysterical scaremongering leading up to the election. He says Cullen is basically saying that it is more important to him as finance minister to sit on a great pile of money.
Act leader Rodney Hide believes given the size of the surplus, the government could afford to bring the top tax rate down to $0.20 in the dollar.
Enterprise advocacy group Business NZ says that the surplus means the government could easily bring forward the planned 2008 business tax cuts.
Chief executive Phil O'Reilly says the business tax reduction from $0.33 to $0.30 planned for April 2008 could be brought forward to April 2007.
"The last time the business rate was cut in 1989, business tax revenue actually went up," O'Reilly said.
"In the decade before 1989, revenue averaged around $1 billion a year, while in the decade after it averaged nearly $3 billion a year - in other words, revenue nearly tripled.
"So there are good reasons for cutting business tax - it stimulates business and economic growth."
O'Reilly says that the surplus is not stimulating the economy in any way but is simply a drain from taxpayers' pockets.
"It should be put to use in a way that truly benefits New Zealand," O'Reilly says.
However, the union body representing civil servants is urging any surplus be ploughed into things like hospitals and schools ahead of tax cuts.
The Public Service Association wants an accord from both Labour and National so that the future of health, conservation, border control and social welfare is safeguarded.