Key promises tax cuts for all

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Dunedin property investor and Otago Property Investors Association president Cliff Seque stands outside one of his student flats in Hyde St. He expects rents to increase after Prime Minister John Key's economic statement in Parliament yesterday. Photo by Linda Robertson.

The tax cuts of up to $4 billion will be funded mainly by increasing GST from 12.5% to 15%, and cutting depreciation tax breaks on buildings.

In his statement to Parliament yesterday on his plans for the year, Prime Minister John Key pledged to give across-the-board tax cuts.

There would be upfront increases in social welfare benefits, superannuation and Working for Families payments to compensate for the GST rise.

He acknowledged that higher-income families would benefit more from the tax cuts, because they paid more in tax.

Lower-income earners would be no worse off - unless they owned rental property - and he expected them to be better off.

He said the Government would not increase GST "unless it saw the vast bulk of New Zealanders better off".

"GST is a very difficult tax to avoid, no matter how people structure their financial affairs. As David Lange once observed, even drug dealers pay GST."

His plan also set new priorities in science and innovation, and in exploiting the financial gains in gas and oil exploration and mining minerals - on conservation land.

"We are not magicians," he told reporters. "We are not a government that has spare cash, so we are having to move things around to make sure we can invest in areas we think are most critical for our growth."

Referring to comments by Reserve Bank governor Alan Bollard on Sunday about New Zealand's gap with Australia, he said: "Alan Bollard might be satisfied with the crumbs off Australia's table - I want the entree, the main course and the dessert."

It is thought that the Government's present aim with the October tax cuts will be to align the top personal tax rate of 38c and trust rate of 33c with the corporate tax rate of 30c.

But there is still more work and modelling for officials to do before that looks like a certainty.

At the very least, there is an expectation the top personal tax rate will drop to 33c.

The Government may want to keep something in reserve in case it has to match a cut in the Australian business tax rate from 30c.

The measures will have the effect of broadly reinstating the tax cuts that National cancelled because of the recession, and funding them from elsewhere.

Yesterday's statement was the Government's response to the tax working group, which urged reform of a "broken" tax system by lowering personal taxes, and steering investment away from residential property to more productive sectors.

Herald calculations on the basis of one of the scenarios in the tax working group report (cutting personal tax rates to 30c, 19c and 10.5c) would see someone on $50,000 get about $12 extra a week net, taking into account higher prices with the GST increase.

A person on $90,000 would get about $50 more a week.

The Government rejected a land tax, which was unpopular; a comprehensive capital gains tax on realised property because it would take too long to get revenue from; and the risk-free method of taxing residential investment properties because it was too complicated.

- Audrey Young of The New Zealand Herald.

Key points
- Closing tax loopholes allowing property investors to avoid tax; details in Budget.
- Consideration of GST increase up to 15%.
- GST increase balanced by "across-the-board" personal tax rate reductions.
- Ruled out: Land tax, comprehensive capital gains tax, risk-free return method for taxing residential investment properties.
- Consideration of how to stop rich families getting Working for Families tax credits.
- Changes to how Crown research institutes are funded.
- Business research and science capability to get boost in Budget.
- Proposed changes allow mining of some conservation land.
- New Conservation Fund, with some royalty from mining on Crown land.
- Removal of regulatory barriers to water storage.
- Development of policy on how national standards information is used after concerns about league tables.
- Shake-up of tertiary education sector.
- Development of whanau ora policy changing how government funds, co-ordinates social-service contracts.
- Continued reforms including tighter checks on sickness beneficiaries; tougher reapplication for unemployment benefits, getting people on the domestic purposes benefit into work or training.
- Changes to Residential Tenancies Act aimed at better management for owners, more security for tenants.

Do you support a rise in GST to 15% if personal tax rates are lowered? Contact us on our teletopics line (03) 467-7123 (Dunedin calls free), email reporters@odt.co.nz [2] or fax (03) 474-7422.