Most economists had picked the first cut in the central bank's official cash rate (OCR) to come on September 11, and it could have been as much as 0.5% to take the OCR down to 7.75%.
In its March monetary policy statement, the Reserve Bank had allowed for $1.5 billion of tax cuts effective from April 1 next year.
The announcement the $1.5 billion would come in on October 1, combined with an earlier index adjustment of working for families and increased superannuitant payments, means a healthy stimulus to the economy.
"Put simply, that means interest rate cuts will be delayed, and will only be very modest when they eventuate," Westpac chief economist Brendan O'Donovan said.
Bank of New Zealand senior economist Craig Ebert was yesterday sticking with his first prediction that the OCR would fall in September.
"But the risks have certainly shifted towards the easing cycle beginning later than September and perhaps proving less aggressive in eventual extent."
ABN Amro Craigs broker Peter McIntyre said the New Zealand dollar had appreciated on the news of the tax cuts, and the swap rates - the interest rates at which banks lend between themselves - had also risen, an indication the market expects interest rates to remain unchanged until next year.
"We are living in a fool's paradise if we think Reserve Bank governor Alan Bollard will cut rates just because of bad retail data.
He has to stop the wage inflation running through."
Inflation was occupying the minds of every central bank in the Western economies, he said.
The October 1 changes will take the form of lowering the bottom tax rate to 12.5% from 15% and a more general increase in thresholds at which the 21%, 33% and the 39% take effect.
A person on an average income of about $45,000 will receive an extra $16.54 a week, something National Party leader John Key said was the equivalent of a family-size block of cheese.
"Then, once the election is gone, the average wage earner will get just $6 more a couple of years later.
It will be a very long time between toasted sandwiches," Mr Key said.
Mr Ebert said while it was not a large amount, it had also not come as a surprise as something along those lines was already planned to start in April 1, 2009.
"But it is an important front-loading of about $1.2 billion over the year to June 2009 that wasn't there before, and it is accompanied by similarly six-month-sooner increments to the working for families tax credit regime worth another $100 million.
"This money will be right in the Reserve Bank's face and will need to be fully factored into its June 5 monetary policy statement."
Mr Ebert questioned how much of the tax cut news came as a true surprise to the Reserve Bank.
The March monetary policy statement defaulted to the Government's previously indicated $1.5 billion worth of tax cuts starting in April 1 and there was every indication that it could be bigger, he said.
"We suspect the bank had at least some idea of what was cooking, even if late in the piece.
Why else would Michael Cullen be so bold to have concluded the budget would not cause Bollard to raise rates?"The announcement seemed to be political gamesmanship on the part of the Government as it tried to hamstring the National Party on what it could promise before the election, he said.
Anything more generous on tax cuts would have to be clawed back through broader spending reductions or by greater borrowing than was included in the budget.
The budget increased the debt issuance programme to about $3.3 billion in each of the coming fiscal years from the previous plan of $2.5 billion a year.
The Government would have to be careful on the brinksmanship behaviour as the budget was not the last word before the election, he said.
The pre-election economic and fiscal update, presumably to be released in October, seemed certain to confirm a pronounced economic slow down was well under way, despite the tax cuts.
