Key cautious on radical economic reform plan

Former National leader Don Brash headed the taskforce. File photo / Doug Sherring

Prime Minister John Key says radical changes proposed in a report into ways to increase New Zealand's productivity are unlikely to be implemented quickly, if at all.

The 2025 Taskforce - named for the date the Government aims to catch up with Australia - will today unveil its report.

Big cuts in top tax rates, cashing up the superannuation "Cullen Fund" to reduce government debt and a traffic congestion tax starting in Auckland are among the measures Don Brash's taskforce has suggested to close the pay gap with Australia by 2025.

Mr Key said during the 1980s and 1990s New Zealand underwent radical economic reform while Australia took a more incremental approach. The trans-Tasman neighbour was now in much better shape.

"In that regard I am not convinced that absolutely radical big bang reform is the right way to go," Mr Key told Radio New Zealand.

"It would certainly have a dramatic effect on New Zealanders and in the short term it would feel very much like we were pulling the rug out from underneath them."

Mr Key said the Government would also keep its promises.

"We campaigned on some core commitments, like not raising the age of super or putting the interest back on student loans, and we would be breaking those commitments if we went and did that so we are not going to.

"That doesn't mean the report doesn't have some value. There well may be some nuggets in the middle of the report... but we are not going to slash $8 billion worth of government expenditure to get the top personal rate down to 20 per cent because I just don't think that would be equitable or fair or something we could easily manage."

Mr Key said some ideas might have merit and he said the tax working group found favour in lower taxes although not on the scale of those recommended in the report.

Labour leader Phil Goff questioned the motivation behind the taskforce.

"It makes you wonder why you would set up a committee led by Don Brash who has come up with an entirely predictable and discredited agenda," he said on Radio New Zealand.

"Why would you do that other than maybe to frighten the hell out of people, put up a straw man and then say `look we're only going to go part way toward that agenda' and everybody breaths a sigh of relief because the slashing that occurs isn't quite as extreme as the Brash proposal."

Government spending

The taskforce's main recommendation is to reduce Government operating spending to 29 per cent of gross domestic product by 2012/13.

This would return it to its levels of 2004 and 2005.

This financial year, the figure is $65.3 billion, or 37.3 per cent of GDP, according to the Budget. It includes spending on health, education, welfare and law and order.

The review proposes a new "flat" tax rate for wage and salary earners and businesses of between 20 and 25 per cent. The top personal rate is now 38c in the dollar and the company tax rate is 30c.

It also suggests the NZ Superannuation Fund or Cullen Fund could be liquidated so the Government can pay back the multi-billion borrowing it has made since the global financial crisis and put New Zealand back into the black sooner than now projected.

The taskforce also believes such a step would remove the temptation for politicians to use the fund for political purposes.

Another recommendation is likely to be to introduce congestion charges in cities - beginning with central Auckland - to help pay for costly road building.

Under this scheme, drivers would pay a fee to use roads within a designated area.

The taskforce is suggesting the National Government cut its core spending to the level it was at before the Labour Government introduced big spending policies like the expansion of Working for Families, and making student loans interest-free before the 2005 election.

But Prime Minister John Key told One News last night that the Government was not going to "pull the rug out from underneath New Zealanders and go for the big bang approaches suggested in the report".

"It's not to say we can't pick our way through the report and find something that might add to New Zealand's economic performance, but where we specifically campaigned on something I'm not going to break my word."

On Friday, Finance Minister Bill English said baseline budget spending had increased by 45 per cent since 2005 and the economy had grown by 15 per cent.

"This kind of rampant spending growth is unsustainable and cannot continue," he said.

Dr Brash told the Herald last night the Ministers of Finance and Economic Development had asked the taskforce to "give its best professional judgment and leave political considerations to one side".

"That's what we have done."

He told the Deloitte/Management Top 200 awards last week that there was no way the gap with Australia would be closed if New Zealand continued the way it was going.

"That is absolutely clear and a very great deal hangs on us not following that track."

It is understood the taskforce believes its recommendations will boost investment, create new dynamism in the economy and excite New Zealanders about their future.

The taskforce's political sponsors, Mr English and Act leader Rodney Hide, hand-picked its members - Mr Brash, former Labour finance minister David Caygill, Icebreaker Traffic tax in catch-up plan

chief executive Jeremy Moon, Australian Productivity Commission member Judith Sloan, and Capital Economics director Bryce Wilkinson.

The taskforce is also understood to have recommended against introducing a capital gains tax on property - one of the issues examined by the Taxation Working Group.

But it is expected to recommend the Government takes a much tougher approach to capital investment so it does not waste taxpayers' money on loss-making assets.

And it will encourage the sale of state-owned enterprises operating in competitive markets - such as TVNZ and power generators Mighty River Power, Genesis Energy and Meridian Energy. It is also expected to favour the commercialisation of the Crown's mineral assets.

THE BIG IDEAS

Main recommendations will include:

* Introducing congestion charges in cities, beginning with central Auckland.
* Wiping interest-free student loans and instead offering them at market rates.
* Subjecting the current 20 hours' free childcare allowance to means testing.
* Keeping National Superannuation as a universal scheme, but gradually increasing the age of eligibility.