Voodoo Economics

Friday 21 May 2004

Richard Prebble Press Releases - Taxation

ACT Leader Richard Prebble described Finance Minister, Dr Cullen's claim, that there is no evidence a cut in the corporate tax rate would drive stronger economic growth, as voodoo economics.

"It is also a U-turn on the views Dr Cullen has expressed repeatedly to business audiences. When Dr Cullen returned from his visit to Ireland he said in a speech in August 2001, 'Last month I paid a visit to Ireland to see what sort of lessons their now booming economy might have for New Zealand. Many commentators outside of Ireland claim that it is the low 10 percent corporate tax rate that lies at the core of its economic transformation. This has certainly played a part...'

"He not only pledged to cut the corporate tax rate when 'fiscal conditions permit' but he stated in a further speech delivered for him by the then undersecretary, John Wright, 'The argument is that if our company rate is significantly above that of our neighbours, companies will move to these jurisdictions, which will lead to a loss of tax revenue as company income is diverted to those incomes. These arguments need to be seriously considered.'

"Dr Cullen is also ignoring research both overseas and in New Zealand and worldwide experience that tax cuts lead to economic growth. "This year's KPMG International survey of tax rates shows that New Zealand's relative rate of corporate tax is higher even than Europe's average.

"New Zealand's rate, relative to OECD countries, has increased over seven years. This is because, globally, corporate tax rates have been tumbling. In 1997, New Zealand's corporate tax was 4% below the average OECD tax rate. Now we are 3% above. It is no longer an option to stay fixed in a situation where other countries are reducing taxes. Since 1996, almost all OECD countries have reduced their rate of corporate tax - some more than once.

"As long ago as 2001, International firm, PricewaterhouseCooper claimed, 'New Zealand's corporate tax rate is not sustainable and its retention will cost both tax revenue and jobs'.

"The Minister of Finance's own department, Treasury, in its recent report on New Zealand Economic Growth, also said that lower taxes are needed to achieve the government's hope for economic growth: '...moving to a flat tax rate for both personal and corporate tax rates is likely to have the greatest impact on economic growth...'

"I do not believe that Dr Cullen has any evidence to support his refusal to lower taxes. He does have a duty to explain why he thinks the OECD, which has also called for lower taxes, is mistaken. His real reason is that he wants to use taxes to buy votes. Dr Cullen himself admits that this week's Budget won't help business but it also won't help working families.

"The bulk of the giveaways are going to go to Social Welfare beneficiaries. It is not taking taxes from the rich to give to the poor - it is taking taxes from small business and the average family to give to Labour's constituency: voodoo economics and electoral bribery", said Mr Prebble.

ENDS

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