Key speech tomorrow to set out economic plan

File photo / Kenny Rodger

After months of debate and speculation the Government will finally reveal its plans for tax reform when Prime Minister John Key kicks off the parliamentary year tomorrow.

Mr Key spent another press conference today fencing with reporters over what was in the proposal or how bold or mild the package might be. He gave no detail but once again pointed to property tax as one area in need of an overhaul.

Mr Key's said his opening statement to Parliament would make the policy direction clearer.

"There will be clear indication of the pathway for tax change in New Zealand. I think it will spell out the areas we think work is required in, it will rule some aspects in to the programme and rule other aspects out," Mr Key said.

After a year-long process the Tax Working Group last month released its recommendations to revamp the tax system which it says is broken and needs comprehensive reform.

It proposed reducing personal tax, increasing GST from 12.5 per cent to 15 per cent, a method of taxing capital gains on residential rental properties and a low-rate land tax. The group said the company, top personal and trust tax rates should be aligned to improve the integrity of the tax system.

Also, it wanted depreciation rules tightened up and tax loopholes closed including on property.

There has been intense debate about all the recommendations - for example, some say that rents will become very expensive if landlords have to pay more tax.

Mr Key said today he shared the Tax Working Group's concerns about property.

"There is $200 billion approximately invested in that sector and the Crown lost $150 million last year. So you can expect to see some discussion on that in the speech tomorrow."

He said the tax system had been favouring people to have rental property and it was hypothetically possible for some investors to avoid paying any tax.

He also pointed to the design of the tax system which encouraged people to arrange their affairs to minimise tax payments.

Preliminary discussions had been held with support parties about the reforms and while their votes had not been "signed in blood", Mr Key did not anticipate problems including final decisions in the May budget and implementing them shortly after.

He believed the proposals would meet tests of fairness, equity and sustainability, but in the end that would be a judgement the public would make, he said

The 20-minute speech would outline wider economic strategy and other policy

Mr Key said 2010 was a crucial year, as the public had given the new Government facing a recession "a fair bit of slack" last year.

The Government had promised to lift economic growth, make New Zealand safer and lift education standards.

"I think we have delivered on two of those... we've got a long way to go on the economic side."

He described tomorrow's speech as one of the most important of his political career, but not the most important.

The rules covering the opening statement to Parliament changed last year.

The Prime Minister's speech is now limited to 20 minutes and is backed by a much longer written statement with more information in it.

Following Mr Key's speech there is a 15-hour debate in reply and the public might get more indications about the Government's thinking on the economy when Finance Minister Bill English appears before Parliament's finance select committee on Wednesday.

- NZPA