Big Hole in Govt Finances

Sunday 3rd Jun 2001 Richard Prebble Media Release -- Economy

Michael Cullen’s tax revenue forecasts have turned out to be hopelessly optimistic, leaving the government in a financial hole, ACT leader Richard Prebble said today.

In a speech to the Otago Merino Association in Queenstown, Mr Prebble said Labour’s election promises were based on a pledge to increase the top income tax rate to 39 cents which was expected to produce an additional $400 million in revenue.

The government also added another $100 million in cigarette taxes.

But tax revenue, instead of rising by $500 million as Michael Cullen expected, is projected to fall by $697 million this year.

Over four years, the loss in tax revenue is predicted to be $2.5 billion, Mr Prebble said.

“The government’s financial position has deteriorated $5.5 billion just in the past six months,” he said.

“The Budget tables show that borrowing by 2005 is predicted to increase by $5.5 billion over what was forecast in the December update, just six months ago. To the best of my knowledge, not one media commentator has reported this massive turnaround.”

Mr Prebble said research by American economists Gerald Scully and Dr Patrick Caragata had shown that raising the rate of tax did not result in any more tax revenue.

Professor Scully found that the New Zealand economy was already taxed beyond its ability to pay. A further tax increase would damage the producer sector, the economy’s growth would be reduced, and tax revenues would fall.

“The reason ACT calls for lower taxes is because a well-designed tax cut will boost the economy, create more jobs and prosperity, and a stronger economy will result in more tax revenue,” Mr Prebble said.

“The ACT party are not really tax cutters at all – they just want to cut the tax rates so they can get more tax revenue.”

ENDS

For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at act@parliament.govt.nz.

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