Top tax rate of 20% requires $7 billion government spending cuts: Productivity Taskforce

Monday 30th November 2009

Government spending cuts of between $7 billion and $9 billion a year would allow massive tax cuts that would offer "a package that would lift the income of New Zealanders very substantially", says the chair of the 2025 Productivity Taskforce, Dr Don Brash.

Unveiling the taskforce's recommendations, the most radical proposals are to:

reduce government spending from 37% of Gross Domestic Product to a ceiling of 29% of GDP, as it was in 2005 before the Labour-led government started spending large Budget surpluses on a range of education, health, welfare and justice initiatives - meaning cuts of $7 billion to $9 billion annually;
Use savings achieved to lower the top personal, corporate and trust tax rates to 20 cents in the dollar. Brash was at pains to say this was not a "flat tax" rate, as lower tax rates would continue to apply for lower incomes.
Stop subsidising the KiwiSaver scheme and wind up the Cullen superannuation savings fund to repay government debt;
Abolish interest-free status for student loans;
Allow more choice and greater accountability in the health and education sectors;

Other recommendations include strongly encouraging the Fonterra cooperative to become a normal company, removal of the Zespri monopoly on kiwifruit exports, and abolishing health and childcare subsidies that reward healthy, middle-class New Zealanders.

Challenged on the extent to which the report, is the product of the Act/National reflects Act policies, Brash said: "Is there a constituency for closing the gap? To the extent that we don't start closing the gap quickly, less of kids and grandkids will live here."

Charged with identifying policies to close the A$16,000 gap between the per capita gross domestic product of Australians and New Zealanders, the taskforce's 35 recommendations which in large part rehash politically unpopular prescriptions that have either burned or been rejected by previous governments.

However, Brash appealed to Prime Minister John Key's "extraordinary communication skills" and played down Key's rejection in advance of huge tax and spending cuts, and a preference for Australia's "incremental" approach to economic growth.

Businesswire.co.nz

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