Key signals GST rise to 15%

Prime Minister John Key has signalled an increase in GST,
across-the-board tax cuts and getting more tax out of property
investors.

In his opening statement to Parliament Mr Key ruled out land and capital gains taxes, but said he was "carefully considering" increasing GST up to 15 percent to fund personal income tax cuts.

The GST increase would raise about $2 billion to fund the cuts and tax structure reform.

Mr Key said debate had focused on the top personal tax rates, but the Government had always been looking at the entire personal tax structure.

The new revenue would also pay for increases to benefits, superannuation and Working for Families to compensate for the price increases that would follow the GST hike.

There will also be changes to the way property investment is taxed so that it pays tax to the Government instead of the current situation where it is effectively subsidised.

Changes to the property tax regime could extend to commercial as well as residential property.

Mr Key said the entire package could raise up to $4 billion allowing for significant reform.

"We think the package is potentially somewhere in the order of $3-4 billion so it gives us quite a lot of room to move in terms of personal tax cuts and potentially corporate tax cuts (which) we haven't ruled out." Mr Key said details would be outlined in the budget, but the aim was to get a more balanced tax system.

He was looking at changes to the tax rates people paid and possibly the corporate rate as well if it could be afforded.

National had a long term goal of aligning the 30 percent top rate, trust rate and company rate.

"Whether we can get there in one step I can't tell you at this point," Mr Key said.

"We have a tax system that taxes labour and investment income at relatively high rates, taxes consumption at a relatively low rate and generally gives money back to people when they invest in residential property," Mr Key said.

While signalling change and reform to be largely funded from a GST hike, Mr Key also gave the Government an out clause saying no decisions were set in stone and more work had to be done.

"The Government would not embark on a policy of increasing GST unless it would benefit the New Zealand economy in the long term and unless it saw the vast bulk of New Zealanders better off," Mr Key said.

There would not be major changes to Working for Families but there would be work done to make it fairer as too many high income people were getting subsidised incomes.

Mr Key said before the speech that he believed changes to the tax system could lead to the Government losing some of its popularity.

"Whether people support our vision for New Zealand will be determined at the next ballot box. But in the end I've got to do what I think is right -- and this is what I think is right."

Preliminary discussions had been held with support parties about the reforms and while their votes had not been "signed in blood", he did not anticipate problems, including final decisions in the May budget and implementing them shortly after.

The wide-ranging statement outlined the Government's wider policy programme with Mr Key signalling that any new spending in the budget would be on boosting research and science capability.

The Government would also shortly release a list of areas of Crown land it believed should be opened up to mining and there was likely to be "significant changes".

Some of the money earned from this would be used to set up a conservation fund.

There would be more scrutiny of government spending in tertiary education and experts would be asked to look at ways to reduce long term welfare dependency.

Mr Key said last year had not been easy for many people, but the economy was starting to pick up and this year's "comprehensive" policy programme would result in New Zealand being a better place to live.

Labour leader Phil Goff said he opposed an increase in GST .

"There's no way the Government will ensure tax changes are fair," he said.

"People who earn the least are going to be the worst affected and we have no confidence the Government will look after those people." Mr Goff said the winners were going to be the high income earners.

He compared the Government's intentions with the way the Australian government had handled the recession and boosted economic growth, saying there was "a smart government" in Australia while Mr Key had no plan to catch up.

"There is nothing here that shows the Government has any idea of how to create growth," he said.

Green Party co-leader Russel Norman said raising GST would do nothing for prosperity.

"The Government is increasing tax on the poor to pay for tax cuts for the rich," he said.

"This is a scam that will only benefit the wealthy." Dr Norman said there would be strong public reaction to mining on conservation land and vowed to "stop the bulldozers".