Personal tax reductions most effective option: IRD, Treasury
Personal income tax reductions most effective
option: IRD & Treasury
Press Release by ACT Leader John Banks
Wednesday, March 20 2013
ACT leader John Banks today welcomed the release today of an IRD and Treasury paper that found that personal income tax reductions would be the most effective tax measure for boosting economic welfare.
"ACT has always argued for a lower, flatter structure for income tax rates," said Mr Banks.
"Ideally we would like to see a single rate for the income tax in New Zealand, and it would not be higher than 20 per cent. With GST at 15 per cent, that would be more than enough to fund government spending on collective consumption of the order of 6-7 per cent of GDP and a substantial welfare safety net.
"The Western World has overstretched itself with high tax rates to fund welfare dependency and once-poor Asian countries such as Singapore and Hong Kong have outstripped New Zealanders in just one lifetime, in good part by not following this degenerative route.
"The 2025 Taskforce reported in 2009 that cutting core Crown expenses to 29 per cent of GDP would, at that time, have allowed the maximum personal tax rate, and the company and trust tax rates, all to be reduced to 20 per cent.
"What made this unattainable is Labour’s dramatic increase in government spending from 29.1% of GDP in 2004/5 to 34.6% in 2008/09, which put a large strain on government finances in the global financial crisis downturn. By increasing spending, Labour squandered the growth dividend from the very reforms that it scorned.
“ACT's Spending Cap Bill, in its original form, would have forced Labour to go directly to the electorate to obtain its approval for its irresponsible spending increases. We believe New Zealanders still need the protection of such a measure.
"The latest IRD/Treasury assessment is yet another reminder of how disgraceful and economically illiterate a former Labour Minister of Finance was in dismissing sensible mainstream economic tax policy advice from Treasury as an 'ideological burp'.
"He and his colleagues were the ideologues, and doubtless still are,” Mr Banks said.
The report can be found here: http://taxpolicy.ird.govt.nz/sites/default/files/2013-other-savings-investment.pdf