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Prebble Letter To PM On Tax Cuts

Hon Richard Prebble CBE
Leader ACT New Zealand
MP Wellington Central
Parliament Buildings

13 June 1999

Rt Hon Jenny Shipley
Prime Minister
Parliament Buildings

Dear Prime Minister

Tax Cuts

I write on behalf of ACT New Zealand in response to the hints of further tax cuts that Bill English, Treasurer designate, has been making.

As ACT is the low tax party, we welcome any steps towards reducing the tax burden. The economy needs a tax cut and New Zealanders deserve it.

However I am concerned that the tax cut is being promoted purely as a way to embarrass the opposition. ACT believes that the best politics is good government and tax cuts should be advanced on their merits.

Adding a new 30 cent tax rate just complicates the tax system. I remind you of the mess Labour is now in with fringe benefit tax having proposed a 39 cent tax rate. A 30 cent tax rate causes similar problems - is a person to have a higher tax on the company car than on their income?

ACT has some practical solutions and some new ideas.

The ideal is a flat rate of tax. The tax cut that will create the biggest increase in investment and jobs is to lower the top rate of tax. A three cent tax cut will still only bring the corporate tax rate to 30 cents, the same as is being proposed for Australia.

A three cent tax cut, if there are no incentive effects, that is no new jobs, growth or extra activity, costs $800 million. As there is $600 million in unallocated expenditure in this year's budget, such a cut is affordable.

The top rate of tax cuts in at just $38,000. In most countries, people do not reach the top rate of tax until they are in a much higher income bracket. If the Government wishes to help middle New Zealand it could, in addition to cutting the top rate of tax, also lift the point at which the top rate of tax cuts in.

I ask the government to give this proposal urgent attention. ACT's proposal is sustainable. Such a tax cut should be announced now and introduced immediately. Any delay will result in the media labelling the tax cut as an election bribe. Tax cuts are good policy and should be proceeded with despite the election, not because of it.

I am happy to take your Minister through the fiscal figures to demonstrate how ACT's proposals are responsible and affordable.


Yours faithfully

Hon Richard Prebble CBE
LEADER, ACT NEW ZEALAND
MP, WELLINGTON CENTRAL

ENDS


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