Proposals far from radical

Tax, the prime minister proclaims, is a powerful lever for the Government to boost the economy's performance.

But at this stage instead of grasping that lever he is just crooking his little finger around it.

He endorses the tax working group's analysis of the problems: we tax all the wrong things from the standpoint of growth, the system is riddled with unfairness, there is a hole in the tax base around property and the system's longer-term sustainability is at risk.

But he then goes on to rule out most of the options the working group puts up for addressing these shortcomings by expanding the tax base and lowering rates: no land tax, no wealth tax on investment properties, no comprehensive capital gains tax.

Some changes will nonetheless be made to the way property is taxed.

On what these might be, John Key was silent.

But of the options considered by the tax working group, scrapping the depreciation deduction for buildings appears to be the only one left on the table.

That might be enough to fund a cut in the top personal rate back down to to 33c, but not a lot more.

There is no mention of even the desirability of aligning tax rates.

And no mention of company tax at all.

That may be an exercise in keeping options open until the Budget, by which time it should be a bit clearer what might happen to company tax across the Tasman.

An increase in GST remains under consideration but would require compensating cuts to income tax across the board, always an expensive option.

And the Government would not raise GST, he said, unless it "saw the vast bulk of New Zealanders better off".

One of the options modelled for the tax working group -- and it is only one possibility -- offsets the $2.1 billion increased tax take from GST by cutting the two lowest income tax rates by 2c in the dollar, which would leave income taxpayers about $2 billion better off.

Overall it's a wash, which at the margin might encourage more saving and less spending - desirable, but no more likely to transform the economy than the last rise in GST did.

It is a far cry from some of the more radical options modelled by the tax working group which might have allowed the top personal company and trust rates to be aligned at 27 or even 25%.

- Brian Fallow of The New Zealand Herald