Big cuts to top tax rates and the liquidation of the Cullen
Fund to pay down New Zealand's snowballing debt are among the
measures Don Brash's task force has suggested to close the
pay gap with Australia by 2025.
The 2025 Taskforce - named for the date the Government aims
to catch up with its transtasman neighbour - will at 2pm
today publicly unveil its report into ways of increasing New
Zealand's productivity.
The main recommendation is to reduce Government operating
spending (as measured by core Crown operating expenses) to
29% of GDP by 2012-13 - the same share as was recorded in
2004 and 2005.
In the current financial year, core Crown expenses were $65.3
billion, or 37.3% of GDP, according to the Budget.
They included spending on health, education, welfare and law
and order.
The recommendation would pave the way for a new top "flat"
tax rate for wage and salary earners and businesses of
20-25%.
At present, the top personal rate is 38 cents in the dollar
and company tax rate is at 30%.
It also suggests the NZ Superannuation Fund, or Cullen Fund,
could be disbanded so the Government can back the
multibillion-dollar borrowings it has taken on board in the
wake of the global financial crisis and put New Zealand back
on the path of posting fiscal surpluses earlier than under
current projections.
The taskforce also believes such a step would remove the
temptation to politicians to use the fund for political
purposes.
Another recommendation is likely to be introducing congestion
charges in New Zealand cities - beginning with Central
Auckland - to take the pressure off costly road-building.
Under this scheme, drivers would pay a fee to use roads
within a designated area.
In reality, the taskforce is suggesting the National
Government reduce core government spending back to 2004-05
levels - before the Labour Government unveiled big-spending
policies like the expansion of Working for Families, and
making student loans interest-free in the run-up to the 2005
election.
But Prime Minister John Key told One News last night the
Government was not going to "pull the rug out from underneath
New Zealanders and go for the big bang approaches . . .
suggested in the report".
"It's not to say we can't pick our way through the report and
find something that might add to New Zealand's economic
performance, but where we specifically campaigned on
something I'm not going to break my word."
But on Friday, Finance Minister Bill English said baseline
budget spending had increased 45% since 2005 while the
economy had grown only 15%.
"This kind of rampant spending growth is unsustainable and
cannot continue."
Dr Brash told the Herald last night the task force had been
asked by the ministers of finance and economic development to
"give its best professional judgement and leave political
considerations to one side".
"That's what we have done."
But he told a business audience last week there was no way
the parity gap would be closed on New Zealand's current
track.
"That is absolutely clear and a very great deal hangs on us
not following that track."
It is understood the task force believes its recommendations
would pave the way for a boost in investment, create new
dynamism in the economy and excite New Zealanders about their
future.
It will argue the only countries to have improved their
relative economic positions in relation to wealthier
countries are those which have lower tax rates or which have
cut tax rates.
The task force's political sponsors, Finance Minister Bill
English and Act leader Rodney Hide, hand-picked the team: Mr
Brash (chairman), former Labour finance minister David
Caygill, Icebreaker chief executive Jeremy Moon, Australian
Productivity Commission member Judith Sloan, and Capital
Economics director Bryce Wilkinson.
Their recommendations fall in four areas: the Government as
spender, tax-collector, owner of assets, and lawmaker and
regulator.
The task force is also understood to have recommended against
levying a capital gains tax on property - one of the issues
studied by the Taxation Working Group.
But it is expected to recommend the Government takes a much
tougher approach to capital investment so it does not waste
taxpayers' funds on loss-making assets.
It will also encourage the sale of state-owned enterprises
operating in competitive markets.
This policy opens the way for the privatisation of TVNZ,
state-power generators Mighty River Power, Genesis Energy and
Meridian Energy.
It is also expected to favour the commercialisation of the
Crown's mineral assets.
On the regulatory front, the task force suggests a "first
principles" review of the Resource Management Act which it
believes stymies entrepreneurs from embarking on innovative
projects.
It also wants New Zealand to look at the United Kingdom, US
and Canada as possible models for regulation. - The New
Zealand Herald
Aussie
Dr Brash's options are not the case in Australia. Doctor visits are free, benefits are higher and easier to get, and taxes are generally lower.
Not really ...
They're really only lower if you ignore the state payroll taxes.
ADDED LATER: note - Australians pay payroll tax to pay for state functions like police, roads, education etc - you need to include these if you want to better compare NZ/Aussie taxes in a more apples to apples sort of way.
It's a two edged street because the tax is taken out before people are paid it essentially reduces their income, meaning that Aussie incomes are really 5% higher than quoted - so for a state with a 5% payroll tax (a mythical state, some states have higher rates - NSW is 5.75 for example, others lower) an Aussie who nominally earns $100k really earns $105.3k but has 5% taken out before they see the numbers in their paypacket.
As a result someone in that state who pays the same 38% marginal rate that NZ does is really paying a marginal rate of ~41% (these taxes don't add, they multiply). The Aussie middle class 30% marginal tax rate is actually almost the same as the NZ 33% rate and someone on the top Aussie 45% marginal rate is really paying around 48%.
Mr Key and the tax cuts
Into the time warp we go. Straight back to the 1990s. Do not pass Go, do not collect $200. I suspect there are many people out there who are still waiting to reap the benefits of the 'trickle-down effect'. I know that it never trickled down to my neck of the woods. The much touted benefits of 'competition' never eventuated either, at least not among local power companies. If NZ wants to play at catch-up with Australia then here's a couple of things I'd be doing.
Given that the government is making noises about reforming the tax system then why bother repeating the 1990s? Why not do something really interesting instead of hoping for the mythical trickle-down effect by backing top earners? I'd like to see a flat rate for income tax. Make the first $6,000 tax free so low income earners and beneficiaries don't get wiped out. Is there a fairer system than that?
The second thing I'd be doing is trying to take some of the load off the public health system. Costs are set to sky rocket as the wheels start to fall off the baby-boomer generation. A solution here (if the government moves quickly) is to make private health insurance mandatory for high-income earners, say a ball-park figure of $120k household income. This should help take the load off the public system. Top earners reap the benefits of a less crowded system, and it might start encouraging real competition, in the health sector at least, and the benefits thereof.
My instinct about New Zealand is that it will eventually sell itself regardless of what the government does. Our isolation and beauty will ultimately count for more than Dr Brash's calculator. As the rest of the world turns to hell (overpopulation, water shortages, crop failure, civil unrest, decimated fish stocks, and so on) New Zealand will start looking increasingly attractive regardless of whether we have tax breaks for the rich or not. When all those obscenely wealthy yanks, Chinese, and east Europeans start pouring through our gates it may be that we finally realise how being a small and beautiful country was enough after all.
Australia's tax rates
Of course in comparison Australia's top federal tax rate is 45% (over $180k) and $38% (over 90k).
On top of that Australians pay a somewhat hidden state payroll tax of (5-6%) to fund their state governments.
They also pay capital gains taxes at 1/2 their marginal federal rate if assets are held for 1 year or more and at the full rate for less than a year.