In his opening statement to Parliament, Prime Minister John Key outlined changes the Government is considering to the tax system to lift New Zealand's economic growth and help families get ahead.
As part of a package of options, they include personal tax cuts, changes to the way investment property is taxed and consideration of a rise in GST from 12.5% to 15%.
No final decisions have been made and the detail of our tax package won't be announced until the Budget on May 20.
So why is the Government considering changing our tax system?To answer that question we need to look at recent history.
New Zealand has some great advantages.
We are the world's largest dairy exporter and we have a wealth of other natural resources.
We have also developed outstanding industries in areas as diverse as biotechnology, software and wine.
But in the past few decades, we've fallen further behind the countries we like to compare ourselves with; for example, our neighbour Australia.
It's great we're emerging from the recession in reasonable shape and that we're seeing some welcome signs of recovery, but we face some serious impediments to growth.
The economy has become precariously lopsided.
Our export industries have actually been in recession for more than five years and created no net new jobs.
At the same time, government spending has grown at more than twice the rate of economic growth and the property market has soared - increasing New Zealanders' level of debt to the rest of the world.
Those imbalances simply cannot continue if we are to increase New Zealanders' wages and standard of living.
We need a better-performing economy.
That's why this Government's focus in 2010 is on significantly increasing economic growth.
To achieve this we need to tilt the economy towards investment, savings and exports, and away from the unsustainable consumption, borrowing and government spending increases of the past decade.
We need to change the incentives so resources flow where we want them to go.
One of the ways we can do this is through the tax system.
For ordinary New Zealanders, we want a tax system that rewards effort, encourages savings and helps families get ahead.
For the economy, we want a tax system that helps fix the structural imbalances built up under the last Government.
In the case of GST, a modest rise accompanied by a personal tax cut would give people more choice.
Their take-home pay would increase and they could use that to save, or pay off their mortgage, without being taxed on it.
Savings and investment rather than consumption would be encouraged, and people would get to keep more of each extra dollar they earned.
In the case of property, change is needed because the present generous tax treatment has been distorting investment behaviour.
The tax working group noted that New Zealanders have $200 billion invested in rental properties: nearly four times the size of the entire New Zealand sharemarket.
In 2008, it produced a negative taxable return of $500 million and $150 million in tax revenue losses.
Removing tax advantages for predominantly high-income property investors and redistributing that revenue through personal tax cuts would increase the overall fairness of the tax system.
It would also reduce incentives to invest in property over other forms of investment.
Since the Prime Minister's statement, some people have questioned whether these changes would leave low-income earners worse off.
Let me be clear: fairness and equity will be key considerations for this Government.
It is our intention that people's tax cuts will at least match any possible rise in GST.
Such a rise would be accompanied by compensation for those receiving benefits, superannuation and Working for Families.
In addition, closing gaps around the taxation of investment property would increase the pool of money, meaning our tax cuts would make most wage earners better off.
As well as meeting the tests of equity and fairness, any changes must deliver benefits to households and the economy that outweigh the costs; and, given that we face another six years of Budget deficits, they must be fiscally neutral.
In addition, any changes must be politically sustainable.
We would rather take a series of smaller steps that the public can understand and support than launch a big-bang package of bold reforms that pleases a few commentators but sparks an overwhelming public backlash.
We've seen this happen in the past and it's been followed by extended periods of economic policy inertia and, most damaging of all, a return to economic underperformance.
We are committed to an ongoing programme of economic improvement.
Higher economic growth matters because it creates jobs, raises incomes, improves living standards and provides public services to the most vulnerable.
There is no other way to achieve these things.
We have a clear choice: we can continue to muddle along and fall further behind other countries.
Or we can set our sights high and create the kind of country the Prime Minister spoke of before the 2008 election.
• Bill English is Deputy Prime Minister and Finance Minister.
Today he will give a speech to an Auckland (Massey University and Auckland Chamber of Commerce) business lunch explaining why New Zealand needs to lift its game economically, and covering aspects of the Government's economic programme for 2010 - including initiatives such as tax reform and infrastructure investment.
