If the Government goes ahead with its entire tax reform package it will be able to cut the top rate of personal tax, corporate tax and trust tax to 30 percent, as well as creating a tax free earnings threshold and compensating low income people for the rise in GST, a tax expert said today.
Buddle Findlay tax partner Neil Russ said there was a "smorgasbord of options" that the Government could take if it raised GST to 15 percent and cut the depreciation claims on investment properties.
The GST hike would raise around $2 billion and the property tax changes would save the Government around $1.6 billion.
Prime Minister John Key has indicated that the Government is looking at cutting tax rates, not the thresholds at which they pay those rates.
Mr Russ said it would cost about $1.6 billion to align the top personal, trust and company rates at 30 percent.
It had been estimated by the Tax Working Group that it would cost around $600 million to increase benefits, superannuation and Working for Families payments to compensate for the lift in GST.
Mr Key said today that personal tax cuts would be across the board, Mr Russ said one possible way to do this was to make a certain amount of income tax-free.
Mr Russ said he did not believe the Government would lower the smaller tax rates, but the model overseas was to allow the first few thousands of dollars tax-free.
In 2005, Treasury estimated that the Greens' election promise of creating a $5000 tax-free income threshold would cost $2.47 billion.
Depending on how far the Government would go the money raised from changes would allow it to move towards this, Mr Russ said.
Aligning the tax rates would end the practice of people arranging their affairs to minimise tax.
"All of the sudden life would become a lot simpler for the IRD and taxpayers, and some of the strange and artificial behaviours we see would stop," Mr Russ said.
Changes to the property deprecation charge would remove a "distortion" on investment decisions and it would be difficult not to cover both commercial and residential investment properties, Mr Russ said.
Cutting the rates and creating a tax free threshold would also stimulate economic activity partly increasing the Government's tax take.
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." 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.