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Launch of ACT Tax and Economic Policy – Prebble

Launch of ACT Tax and Economic Policy – Prebble Speech

Launch of ACT Tax and Economic Policy

Thursday 6 Jun 2002 Richard Prebble Speeches -- Economy

Beehive Theatrette, Parliament Buildings, 1pm

Cut company tax rate to 28 cents - that is lower tax than Australia. A tax cut for all workers. A bonfire of compliance cost regulations.

Welcome to ACT's first campaign policy launch of the 2002 Election.

ACT's cornerstone economic policy is to lower New Zealand's tax rates below Australia. The Australian Liberal government last year lowered Australia's company tax rates to 30 cents - that is 10 percent below New Zealand's company tax rate.

New Zealand as a trading nation, cannot compete at a higher tax rate than Australia.

New Zealand's company tax rate is today 33 cents - and soon to be 19.5 cents for Maori companies.

The $1 million McLeod Tax Review recommended that the company tax rate be reduced to 28 cents, two cents below Australia.

ACT is very grateful to Dr Cullen for having commissioned the McLeod Tax Review. Dr Cullen is reputed to have said "I have spent $1 million to cost ACT's policies."

A company tax rate of 28 cents will:

* Encourage investment

* Create jobs

* Create prosperity

And a 28-cent company tax rate is crucial to reaching 4%-plus growth needed to return to the top half of OECD.

ACT's policy is an immediate cut in the company tax rate to 28 cents. The cost of a 28 cent company tax rate is just $850 million a year, assuming no new investment, no growth and no new jobs.

ACT has used the Treasury tax ready-reckoner issued after the Budget, on 23 May, to cost our policies.

It is my own view that the cut in the company tax rate will be revenue positive.

I was the Associate Finance Minister in 1988 when the company tax rate was cut from 48 cents to 33 cents. This tax cut resulted in a tripling of company tax revenue - a fact Dr Cullen refuses to acknowledge.

In the decade prior to 1988, company tax revenue averaged $1 billion a year. During the next decade, company tax revenue averaged $3 billion.

The evidence around the world and in New Zealand is that lower company tax rates do boost investment, growth and jobs. ACT will campaign that Dr Cullen's claim that high taxes do not harm growth, is simply wrong.

The Douglas/Richardson tax cuts resulted in 5 percent growth in the 1990s. The present Treasury projections in the 2002 Budget are for 2 percent growth, half the rate needed to be a first world nation.

National's proposal to cut company tax to 30 cents, the same as Australia, is a move in the right direction but will not halt the exodus across the Tasman.

ACT has, in researching our policy, surveyed 9,500 mainly small businesses on Auckland's North Shore. Just 3 percent agree with Labour's high tax policy. Only 4 percent favour National's policy of having the same tax as Australia. A massive 93 percent of small businesses replied that they would invest and employ more if company tax was cut to 28 cents.

As an aside, Dr Cullen's claim that New Zealand is a low tax country, is false. The OECD states only two countries tax income and business profits more than New Zealand - Sweden and Denmark. Both countries also have 2 percent growth.

ACT accepts the McLeod report recommendation that in an efficient tax system, the top personal and company rates have to be the same.

McLeod recommends that the present three-tier tax system of 39 cents, 33 cents and 19.5 cents be reduced to just two rates of tax. McLeod states on Page 20 of his report - "A $2 billion dollar reduction [in tax revenue] would allow both rates [company and personal] to be cut to 28 per cent." This is a remarkable finding. Two billion dollars is just 4 percent of total government revenue, which is this year $42 billion.

When the McLeod Tax Review was released, I was surprised by how low the cost would be of reducing the top personal and company tax rates to 28 cents. I am a former Finance Minister, so I know that the top rate is essentially an envy tax. The 39-cent tax rate raises just $400 million.

I went to see McLeod and challenged the figures. McLeod stands by them. They have been checked by Treasury, by Andersen Consultancy and by Dr Ted Sieper from Australia - the cost is just $2 billion.

ACT proposes to adopt the McLeod Tax report suggestion to have just two rates of income tax. A top rate of personal tax of 28 cents [down from 39 and 33] at the same starting point, and drop the lower income tax rate from 19.5 per cent to 18 per cent. By keeping the present low-income tax rebate, thus dropping the bottom rate, which McLeod did not propose, it would give a tax cut to every worker. No one is worse off.

The cost of ACT's policy is $2.3 billion for the 28-cent top personal and company tax rate, and another $600 million to reduce the bottom tax rate - a total cost of $2.9 billion. That's a worst-case scenario, given no new investment, not one single new job and no growth.

How would ACT pay for this immediate tax cut? I remind you that the current surplus, announced by Dr Cullen in the Budget, is $2.3 billion.

ACT would start by scrapping the Cullen Super Scheme that will cost $1.8 billion, with most of it being invested overseas.

ACT would also cut social welfare for business, which costs $200 million a year.

ACT will also cut spending such as Maori TV, KiwiBank and Air New Zealand. These expenditures have averaged $400 million a year under Labour. Scrapping Closing the Gaps spending will give us a further $150 million a year. ACT believes there are further savings in welfare as we get able-bodied working-age beneficiaries back into the work force.

The expenditure cuts that I have just outlined exceed the cost of ACT's tax package.

ACT will make no reduction in health or education spending.

ACT believes that if we want quality education we must pay good teachers more. The present PPTA/government wage package is inadequate to keep and retain good teachers.

ACT's well-designed tax cut will boost investment. It will help reverse the brain drain. Lower taxes will create new jobs.

ACT estimates the tax cuts alone will boost growth by 1 percent a year. The tax cuts will significantly improve prosperity. The tax cuts will also encourage more able-bodied working-age beneficiaries back into the work force. There are 30,000 more able-bodied, working-age beneficiaries today - when unemployment is 5 percent - than there were a decade ago when unemployment was 11 percent.

ACT's policy will assist middle New Zealand who have been ignored by both old parties. A typical example is a person on $40,000 a year, with a family. Under Labour this family gets nothing. They -

* Do not qualify for family support

* Do not qualify for State house rental reduction

* Do not qualify for community card

* Are paying extra petrol tax

* Won't watch Maori TV

Under National's tax policy the family on $40,000 also gets nothing.

Under ACT's tax cuts, the family earning $40,000 gets another $670 take-home pay - in effect a pay rise.

ACT's 28-cent company tax is stage one. ACT is still committed to a low flat tax. A 28-cent company tax rate is only bringing New Zealand to the OECD average.

New Zealand, as a small geographically-isolated trading nation, needs to have an internationally-competitive company tax rate.

ACT's policy is to have a flat tax rate of 18 percent in five years. For the reasons given, ACT believes our 28 percent company tax rate will actually be revenue positive. As ACT grows the economy and reforms welfare, with able-bodied working-age beneficiaries coming off welfare and becoming taxpayers, we will be able to achieve a 2 percent reduction in tax rates each year.

New Zealand will have a flat rate of tax of 18 percent in five years. The tax cuts will act as a boost to investment, jobs and growth. To achieve 4 percent-plus growth it is necessary to create a more business-friendly environment.

This year's Economist magazine survey rates Australia as a more business-friendly country than New Zealand. Red tape has increased under Labour. The red tape cost to a medium-sized business has increased $26,000 under Labour.

ACT fundamentally disagrees with Labour's "hands on" compliance cost, government-regulating-control approach.

ACT says that most regulations would not be necessary if government relied on:

· Private property rights

· Sanctity of contract

We do not need a nanny state or Jim Anderton as businesses' unwanted partner, sharing none of the risk and taking half of the profits.

ACT proposes a bonfire of red tape. ACT policy is: * A zero-base review of regulations.

* A Regulatory Responsibility Act to ensure all new regulations are cost benefit positive. * A law change so that in future there is full compensation for the taking of property rights by either local or central government. ACT proposes this as an amendment to the Bill of Rights - the right to own private property and to be fully compensated when the State takes that property.

The ACT Party, as part of its survey of 9,500 North Shore businesses asked whether compliance costs are a significant problem. Over two-thirds (72%) responded that red tape is a problem.

As you would expect, red tape affects different businesses differently. The biggest compliance cost is ACC (52%), the Employment laws (50%), Resource Management (48%) and OSH (47%).

ACT believes each of the laws need to be fundamentally rewritten.

ACT will be announcing later our policy in each area, but we see the re-writing of these compliance-costly laws as vital. Cutting red tape is worth a further one percent growth, which, added to the underlying growth rate of 2 percent, will take New Zealand to 4 percent-plus sustainable growth.

ACT acknowledges that 4 percent growth also requires other policies - free trade, a quality education, including a pay rise for good teachers, and real welfare reform.

ACT will be announcing our fresh ideas and practical, positive solutions to these issues in later releases. Today, ACT is putting up our next commercial hoardings - Tax Cut for Every Worker and Lower Taxes than Australia - following up our Zero Tolerance for Crime billboards.

The tax and economic package that I am announcing today is affordable. ACT's proposals will:

* Give every worker a tax cut, in effect, an increase in take home pay.

* Cut New Zealand's taxes below Australia.

ACT's economic and tax policies will boost investment, jobs, growth and prosperity.


For more information visit ACT online at or contact the ACT Parliamentary Office at

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