Key lukewarm on tax reform

Prime Minister John Key
Prime Minister John Key
Prime Minister John Key says radical changes in a report to be released today are unlikely to be implemented quickly, if at all.

The 2025 Taskforce report into ways New Zealand could increase productivity and close the wage gap with Australia by that date will be released at midday.

Recommendations, already reported in several media, included:

* Replacing the top tax rate of 38 cents in the dollar and business rate of 30 cents in the dollar with a top tax rate of between 20 and 25 percent.

* Limitations on some universal benefits. Those included interest-free student loans and subsidies for early childhood care education.

* The government to reduce operational spending to 29 percent of gross domestic product by 2012-13.

* Use the NZ Superannuation Fund to pay back borrowing and change the age of entitlement.

* Impose congestion charges in cities to pay for roads.

* No capital gains tax.

Mr Key said during the 1980s and 1990s New Zealand underwent radical economic reform while Australia took a more incremental approach. The trans-Tasman neighbour was now in much better shape.

"In that regard I am not convinced that absolutely radical big bang reform is the right way to go," Mr Key told Radio New Zealand.

"It would certainly have a dramatic effect on New Zealanders and in the short term it would feel very much like we were pulling the rug out from underneath them."

Mr Key said the Government would also keep its promises.

"We campaigned on some core commitments, like not raising the age of super or putting the interest back on student loans, and we would be breaking those commitments if we went and did that so we are not going to.

"That doesn't mean the report doesn't have some value. There well may be some nuggets in the middle of the report... but we are not going to slash $8 billion worth of government expenditure to get the top personal rate down to 20 percent because I just don't think that would be equitable or fair or something we could easily manage."

Mr Key said some ideas might have merit and he said the tax working group found favour in lower taxes although not on the scale of those recommended in the report.

The taskforce is headed by former National Party leader Don Brash, who was also a Reserve Bank governor.

New Zealand wages are about 30 percent lower than Australia's. Also, New Zealand's productivity has grown at about 1 percent for the last decade, which would need to increase to 3 percent a year to match Australia's rate.

 

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