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Policy: Questions and Answers On ACT's Tax Policy

Does ACT's policy mean low income earners will pay more?

No. ACT is simply reducing the top rate of tax from 33 cents to 20 cents. Low income earners will still pay 15 cents in the dollar, in actual terms, because their tax free threshold will not change. ACT’s policy will ensure equity because low income tax payers, like the retired and beneficiaries will continue to pay the same tax as today.

Does this mean ACT will cut spending?

No. The tax reductions are entirely funded by eliminating the "future initiatives" and reducing the operating surplus. Forecast government spending remains as it is.

So what are “Future Initiatives”?

In every budget there is a fund, which Parliament approves, that puts half a billion dollars a year compounding to one side for Ministers to spend on what ever they feel like. Rather than Government asking taxpayers, they just let tax payers give them the money in advance. It’s like getting an increase on your visa card every year without even asking the bank manager. And of course, the fact the money is there to be spent is all politicians need to spend it.

So how should Government fund important new ideas?

If a new policy is so important or vital then Government should put it to Parliament to be funded each budget – not sneak the money from tax payers in advance. ACT says that there is so much waste in Government that politicians, like every household, should first look to see if they can save by eliminating waste, or change priorities before they fund something new.

Is this scheme affordable?

Yes, because ACT’s figures confirm that controlling Government spending doesn’t mean cutting services. All that needs to be done is to confirm existing government budgets, with any new projects funded, not from the taxpayer, but by cutting waste. ACT's proposal is very conservative because it assumes not one extra job or any extra investment when the tax rate is lowered from 33 cents to 20 cents.

What reduction in government spending will this mean?

In the year 2005 the total reduction would be 3.7 billion, without cuts to the current level of services.

How will ACT's policy create jobs?

Reducing the top rate of tax reduces the cost of capital in New Zealand substantially. This means more investment in New Zealand and more jobs. Many businesses that are unprofitable at 33 cents in the dollar become profitable at 20 cents in the dollar. Ontario in Canada, and Ireland are enjoying substantial growth and job creation as a consequence of the economic stimulus provided by their various tax cuts. Sweden's Social Democratic government is expected to cut taxes between 0.5 and 0.8 percent of GDP in 2000 to reverse the loss of highly skilled technical professionals.

But we have had tax cuts in New Zealand and unemployment is still too high – why will ACT’s plan work?

Simply, tax cuts to date have been great to help family budgets and ACT has supported them. But, they haven't lowered the company rate of tax, which drives the decision to invest in jobs and business in New Zealand. That's why ACT says we have to cut the top rate of tax because that will help the entire economy.

If National are debating whether they can afford a three cent tax cut to the corporate tax rate how can ACT say that you can afford to take the tax rates down to twenty cents?

Simply, because National want to preserve the slush fund to let them spend more. ACT says Government should live within its budgets and not just eat into the taxpayers pocket through the political slush fund that the provision for future initiatives provides. Under our budget the Government will be spending 2.5 billion more a year in 2005 than it is now. What National's saying is that government should be spending $4 billion more.

How can you cut government revenue by this much and not cut government spending?

The tax cuts are taken out of future initiatives (money to be spent on as yet unspecified projects) and the operating surplus, just like the tax cuts that are promised 1 April next year. Clearly, in their cautious way, National has already shown this can be done without any of the hysterical, doomsday scenarios for government services that the Left are ignorantly predicting. ACT says let’s do it on a bigger scale and create 80,000 new jobs, and reward hard working kiwis without penalising low income individuals or families or affecting the level of government services.

ENDS

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