Top tax rate cuts suggested

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