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Tax remains an important part of economic plan

John Key MP
National Party Leader

7 October 2008

Tax remains an important part of economic plan

New Zealand's economy is facing three serious challenges:

* A worsening international outlook.

* A recession.

* And, under Labour, little prospect of the conditions needed for long-term growth.

Each issue is manageable but each will require firm leadership.

I want to make some brief comments about these challenges today, before reiterating National's commitment to tax reduction as an important part of our economic plan.

We have been monitoring the build-up in problems in the financial markets over the past several months, and particularly in recent weeks, and the scale of intervention by other governments.

I received a briefing from the Reserve Bank on Sunday.

I am satisfied that its current plans are sufficient at this stage to maintain confidence in the New Zealand financial system over the coming months.

Should it become necessary, however, my colleagues and I are committed to working with the Reserve Bank to ensure financial stability.

National is further concerned by the projections outlined in yesterday's opening of the government books, and the current outlook for New Zealand's long-term growth prospects.

Yesterday was final proof that New Zealand can't afford another decade of Labour's loose economic management.

If New Zealand is to avoid the Treasury's projected decade of deficits we simply must focus our attention on growing the economy.

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Only a strong economy will guarantee financial security for families, well paid jobs in New Zealand for our young people, and larger superannuation payments for our older people.

Turning the economy around will not be easy.

In the past nine years economic growth has been fed by easily available credit.

Those days are over.

In today's changed world, New Zealand's economic recovery must be built on stronger fundamentals.

It must be built on improved productivity and a better environment for investment in jobs and growth.

To ensure this happens, New Zealand needs a Government with a strong economic management plan.

That is what National will provide.

Our economic management plan will provide the immediate economic stimulus needed to see us through this storm, while strengthening New Zealand's position in the longer term by boosting economic growth.

It has five essential components:

1) Bringing some real discipline to government spending and ensuring a strong focus on the provision of frontline services. 2) Stopping the massive and costly rise in overall government bureaucracy and cutting red tape.

I will have much more to say about both of these points in the coming days.

3) Ongoing tax reduction 4) A step-up in infrastructure investment to increase our capacity to grow. 5) A renewed focus on lifting education standards.

Today I am confirming our commitment to get behind Kiwi workers with a programme of personal tax reduction beginning in April next year.

In light of recent events that commitment is more important than it was previously.

We have made some changes to our tax package in light of the news Michael Cullen dished up in yesterday's pre-election fiscal update (PREFU).

The thrust has not changed.

But we are being realistic about what is fair and affordable in light of the mess Labour will be leaving behind it.

National will deliver a responsible growth-enhancing programme of ongoing tax reduction that does not put more pressure on the government's finances.

Following on from the Labour tax cuts of 1 October 2008, National will be making further tax reductions on 1 April 2009, 1 April 2010 and 1 April 2011.

The largest chunk of this tax reduction will be provided on 1 April next year.

For someone on the average wage, the actual amount of the tax cuts will be similar to that which we have previously signalled, and I will detail those numbers tomorrow.

Our tax package will demonstrate my determination to ensure vulnerable New Zealanders are protected from the sharp edge of a recession.

It will require no borrowing over and above the requirements laid out in the PREFU.

And it will be paid for by a few clear policy choices we have made and which I will outline tomorrow.

In the immediate future, this programme of tax reduction will ensure there is more cash in the economy and it will give New Zealanders more breathing space in these harder economic times.

But, let me be clear - our tax programme is not just a one-off response to a short-term problem.

Most importantly, this programme will be part of National's plan to move New Zealand out of the recession more quickly and to strengthen our growth prospects.

It will improve incentives in the New Zealand economy and it will help stem the flow of skilled workers to Australia and elsewhere.

The importance of these fundamentals should not be underestimated.

What New Zealanders need to know today is that there is a brighter future available in this country and that there is a political party that is prepared to act to make sure that future is realised.

While the world economic situation remains fluid, I am confident that with the right policy settings New Zealand will be able to weather the storm, move out of this recession more quickly, and grow more strongly - to the benefit of all New Zealanders and their families.

ENDS

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