Tax reform needed to help recovery from recession: Key

John Key
John Key
Prime Minister John Key said the tax reforms in yesterday's budget would not affect the distribution of income in New Zealand despite opposition criticism they would benefit the rich.

That was because of the reduction of the lowest two rates, compensation for beneficiaries, superannuitants and those getting Working For Families, and high income earners bearing the brunt of revenue-raising measures in the package, he said.

New Zealand could not just "jump back on the treadmill of unsustainable spending increases" after the recent recession and the tax reforms in yesterday's budget were about an alternative approach.

New Zealand's economic growth in the last decade was driven by consumption, borrowing and government spending, while productivity growth was negative, he said in a post-budget speech to the Trans-Tasman Business Circle in Auckland today.

Government borrowing was appropriate for the global recession but could not continue indefinitely.

The Government kept a "tight rein" on government spending in yesterday's budget while ensuring better delivery of public services, he said.

The tax reforms announced were "fiscally neutral", with the exception of the initial upfront cost.

"The tax package is about the mix of taxes, not the overall level of taxation."

Introducing a high top tax rate would increase taxes on doctors, engineers and other skilled workers while not affecting the very wealthy people who earn business or investment income and do not pay high income tax rates, he said.

"So I reject criticism that the budget tax package is unfair."

Making taxation on different investments more equitable, closing Working For Families loopholes and giving the IRD resources to crack down on tax evasion added up to a "very fair tax package", he said.

The changes would also make New Zealand's tax system more competitive with Australia, he said.

Tax was an important part of the economy because it affected people's decisions about how much to spend, save or invest, how much to work and whether to stay in New Zealand.

"Tax is a persuasive influence in the economy and one of the biggest levers any government can pull to increase economic growth."

 

 

 

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