Bold change needed to rebalance economy and catch Australia, Whitehead says

By Paul McBeth

Oct. 7 (BusinessWire) – Bold tax reforms and changes to the mix of monetary and fiscal policy are needed if New Zealand is to rebalance its economy and close the gap with Australia, according to the Treasury’s head.

New Zealand needs to overhaul its tax system, bringing down income tax and potentially increasing GST or imposing a land tax, Treasury Secretary John Whitehead told a business audience in Queenstown last month. Speech notes were posted on the department’s website today.

Combined with slower growth in government spending, that would allow the central bank to keep interest rates lower for longer, which will set the economy on a high-growth path to catch Australia, he said.

The resurgent kiwi dollar and a faster recovery in the housing market stoked consumer spending and boosted investment in unproductive assets, creating imbalances in the economy. New Zealand climbed out of its longest recession in more than 30 years in the three months ended June, and central bank Governor Alan Bollard has warned the strong currency has continued to undermine his desired export-led recovery.

Whitehead said politicians will require the support of business leaders and public servants to urgently shift the debate to one of pursuing higher growth, and he called on members of the Institute of Directors to argue the case for bold change.

For New Zealand to close the income gap with Australia by 2025, the economy needs to grow at an annual 3.3% compared to 1.5% growth across the Tasman. The government-appointment 2025 Taskforce, headed by former central bank Governor Don Brash, is currently seeking submissions from businesses and community groups on how New Zealand can catch up with its largest trading partner.

Earlier this year, the Treasury recommended a capital gains tax on property as a means to reduce income tax, a suggestion that was shot down by Prime Minister John Key. Last week the Victoria University-led Tax Working Group released a paper advocating a land tax as a means to improve the country’s tax base. The other option on the table is an increase in goods and services tax.

(BusinessWire)