Businesses welcome commitment to tax reform

The Government's proposed tax reforms will promote economic growth and plug holes in the existing tax system, business groups say, but a major union has criticised them.

Prime Minister John Key today indicated an increase in GST of up to 15 percent, across-the-board tax cuts, and greater taxation of property investments, aimed at making the tax system more balanced.

The reforms demonstrated the Government had "a cohesive plan" to bring significant improvements to many parts of the economy, Business NZ chief executive Phil O'Reilly said.

"It is encouraging to see that the Government has a plan and is sticking to it," he said.

"Lower income tax and an increase in GST, with benefit adjustments to ease the transition, will be helpful for business growth and competitiveness, and fairer to all." Exporters would welcome the Government's commitment to rein in spending, which would keep pressure off interest rates and drive down the exchange rate, Mr O'Reilly said.

KPMG chief executive Jan Dawson said it was clear that the Government was looking at the reforms as a broad package that would ensure "a fair and coherent tax regime".

The rejection of a land tax or capital gains tax had provided "welcome clarity", but questions still remained around corporate tax rates, the amount GST would be increased, and the impact of taxing property investments.

Employers and Manufacturers Association northern chief executive Alasdair Thompson said the changes would make employees better off and encourage saving and investment.

"These moves will go a long way to allow for reductions to income tax across the board," he said.

"There is plenty of scope to plug holes in the income tax base to ensure people are not overtaxed." Others were critical of the reforms, with Council of Trade Unions economist Bill Rosenberg describing the announcement as a missed opportunity to boost jobs and make the tax system fairer.

"It is good that the Government is still looking at options for changing the way property is taxed ... but it has missed an opportunity to make significant changes in our tax structure," he said.

"This will only further encourage the development of the 'emerging underclass' he speaks about. The priority should be to reduce inequality, not increase it."