Why Tax Cuts Are Good For Growth

WEDNESDAY 18 OCTOBER 2006

Why Tax Cuts Are Good For Growth

In the wake of the government’s $11 billion budget surplus, a new report argues that cutting taxes could deliver a significant boost to the economy.

In a paper to be released on Wednesday 18 October 2006, Why tax cuts are good for growth, Phil Rennie looks at the economic case for lowering taxes.

‘Many voters support tax cuts because it means more money in the pocket. However, tax can also have a substantial impact on economic growth, which means more jobs, opportunities and a higher standard of living for all New Zealanders.’

According to Rennie, tax cuts can help boost New Zealand’s economic growth in three main ways:

- By making work more rewarding and encouraging more people to enter the workforce

- By reducing the deadweight cost of tax, which is the loss of potential wealth caused by tax affecting people’s behaviour

- By making New Zealand a more attractive destination to invest and work in

‘Higher tax rates reduce the potential return from risk-taking and entrepreneurship, which means that many potential successful businesses have never started up or expanded.’

‘Growth is a big issue for New Zealand. Since the 1950s our standard of living has slipped compared to other countries, and the major reforms of the 1980s and 1990s have only really stopped the decline rather than gained us any ground. Thanks to higher growth rates, incomes in Australia are now a third higher on average than in New Zealand.’

‘Taxes are necessary to run a civilised society, but there needs to be more honesty around the costs that taxation imposes.’

Phil Rennie is a Policy Analyst working in the New Zealand Policy Unit at The Centre for Independent Studies.

Copies of the report Why tax cuts are good for growth are available on request or from the CIS website:

READ IT ONLINE HERE http://www.cis.org.nz/IssueAnalysis/ia75/ia75.pdf

ENDS

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