National widens its plans to cut tax

Don Brash

National party leader Don Brash is promising lower tax for all "working New Zealanders" in the first Budget of a National-led government.

And he says the party is also looking at tax relief for education and medical expenses.

That is broader than previous commitments to lower the company tax rate from 33c to 30c in the dollar and cut the tax of low- to middle-income New Zealanders.

It now means reducing the rate or raising the thresholds on all personal rates, including the top rate of personal tax of 39c which applies to income over $60,000.

The commitment to reduce company tax to 30c remains, but the party had not decided if that will occur in the first Budget, finance spokesman John Key said last night.

Mr Key said he could not elaborate on the tax relief for education and medical expenses, as he had yet to take options to the caucus.

But Dr Brash told an audience on Auckland's North Shore: "It is not at all clear to me why some New Zealanders should be expected to pay twice for their healthcare and for the education of their children - once through their tax, and once through health insurance premiums and school fees."

The flesh won't be put onto the tax-cuts policy at least until the Government's Budget in May - the last before the election, which must be held before the end of September.

But Dr Brash and Mr Key yesterday moved to replace any expectation of large big-bang tax cuts with one of a gradual approach to tax cuts over at least five years.

The emphasis will be on contrasting the tax-cut plan with Labour having done nothing to relieve taxes in five years.

"The approach we are taking is to have a measured but consistent approach to tax relief that is meant to be a philosophy well beyond one Budget or one Parliament," Mr Key said. "It's not a flash in the pan."

Despite last financial year's $7.4 billion operating surplus, Finance Minister Michael Cullen says he is not awash with cash because the surplus is tagged for capital projects such as hospitals and roads and the New Zealand Superannuation Fund.

Dr Cullen said the tax cuts of the magnitude suggested by Dr Brash would not be possible over the long term "without savage spending cuts or spiralling public debt".

But Dr Brash said the updated Government accounts made it clear the next government could give a tax reduction to every working New Zealander in its first Budget.

Since 1999, the Government had had an extra $34 billion above what it would have received had revenue stayed at the 1999 level.

"Yet none of that massive flood of revenue has been returned to the very people who go out to work each day and earn that money," Dr Brash said.

"So there we have it - massive revenue, a huge surplus, and not a thought of easing the enormous pressure on many of those who actually earn the money."

The surplus in the current year is forecast to be $5.6 billion, and Crown financial statements for the four months to October, issued yesterday, showed revenue was higher than forecast by $433 million and core Crown expenses lower than forecast by $204 million.

Dr Cullen told Parliament last week that 22 per cent of full-time workers paid some tax at the 39c rate.

Treasury figures show 10 per cent of all taxpayers pay the rate - double the 5 per cent to whom it applied when Labour introduced the top rate soon after it was elected in 1999.

Lowering company tax to 30c would cost $525 million, and raising the threshold for the 39c rate on income over $60,000 to income over $70,000 would cost $150 million.