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Tax Review Both Controversial And Conciliatory

The Tax Review's paper released today is both controversial and conciliatory, says Business NZ Chief Executive Simon Carlaw.

"Its suggestions for taxing owner-occupied homes will undoubtedly cause controversy, because the tax-free nature of home ownership is jealously guarded by New Zealanders. But over the longer term, such a move would free up money currently invested in housing so it could be put to productive use, to the benefit of our economy," Mr Carlaw said.

"The Review is also quite conciliatory, in that it points the way to a partial resolution of the argument over progressive versus flat tax,

"Progressive tax systems are favoured by many for their ability to redistribute money to the disadvantaged, while flat (proportional) tax systems are favoured because they are less damaging to business growth. The tension between these two different approaches is often the biggest 'political divide' in a modern economy.

"In indicating its support for reducing the number of steps within NZ's progressive system from 4 to 2, the Review may do much to bridge that divide.

"A system with only two rates of tax, with a threshold of $29,500 between them, would simplify tax collection considerably. The Review puts forward several different scenarios for the actual level of tax for the two steps - 16%/33%, 17%/32%, 18%/31% and so on.

"Company tax would be set at the same level as the higher of the two steps - and businesses would naturally want that level to be kept as low as possible in the interests of general economic growth. The Review's 20%/28% scenario is probably the best option for growing the economy while still allowing for tax-funded social spending." Ends

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