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Budget Summit Calls For Long Term Plan

Budget Summit Calls For Long Term Plan

The Business Budget Summit in Wellington today called on the Government to produce a long term plan for personal and corporate tax reform and avoid Budget day surprises.

Delegates to the summit, attended by Finance Minister Michael Cullen and Revenue Minister Peter Dunne and senior business decision makers, heard that countries that have achieved long term success, like Australia and Ireland, have clearly signaled their long term tax regimes.

Business would prefer long term clear directions for tax to "Budget day surprises" paid for out of bracket creep or fiscal drag.

Summit chair Nick Main, also chair of the New Zealand Business Council for Sustainable Development which organised the event, said a sense of direction on tax policy is important for business.

"Over time equating the top corporate and personal tax rates and flattening the tax scale is important if we are to remain internationally competitive.

"In the longer term the Government should not rule out widening the tax base."

The summit heard views on the need to have a staged approach to tax reform in New Zealand. Very little had been done on personal tax reform in the past 20 years. There had been GST changes and cancellation of the flat tax proposal in 1986. Then in 1999 top personal tax rates had been lifted from 33 to 39 cents.

In Australia there is an understanding that tax policies do not come with rock solid guarantees and are subject to economic performance. However, Australia looks at a final destination, and New Zealand should learn from this.

The summit recommendations note

A requirement for Government to set a long term tax reform pathway. Having a goal will help attract both talent, business and revenue. It does not need to all be delivered on day one

The personal tax system should be about growing wealth and incomes. There are other ways of addressing social equity, like extending working for families to cover individuals

The top personal and corporate tax rates should be aligned, to attract people and investment and reduce incentives for tax minimisation

Widening the tax base is probably part of the tax system of the future, though there is no specific recommendation of what this would involve (e.g. raising GST and introducing land taxes)

There is a need to make dynamic analyses of the impacts of tax changes which measure more of the effects

The summit also called for a major step-up in literacy and numeracy education for low decile schools and Maori and Pasifika students to give them opportunities to qualify for skills training.

On future health funding it noted the current system is financially unsustainable (spending will need to double by 2050), and recommended a Cullen type fund be set up to pre-fund health care for the baby boomers, while plans are put in place to encourage people to save for their own health care, possibly using a KiwiSaver type scheme. And younger people, in Generations X and Y, who want to control their own lives, should be encouraged to insure to cover health costs later in life. One method of encouraging greater personal responsibility is to introduce personal health accounts, giving people the freedom to choose the type and timing of their health services.

The summit's full recommendations are at


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