Treasury argues for lower tax

File photo / Mark Mitchell

A Treasury paper out today argues for lower tax and less government spending.

The Treasury paper - Government and economic growth: Does size matter? - said the size and the structure of government played an important role in economic performance.

"There appears to be scope to lower the tax take as a share of the economy or, alternatively, to better position the Crown to deal with long-term expenditure pressures without increasing the tax take," the report said.

"This could be achieved by reducing or limiting growth in expenditures that do no measurably contribute to raising the economy's potential economic growth rate."

Treasury deputy chief executive Andrew Kibblewhite launched the paper. In speech notes to the Institute of Policy Studies in Wellington, Mr Kibblewhite said the Treasury recognised governments have varied objectives in addition to economic growth.

"The state sector provides services to New Zealander that enhance living standards, that build our resilience as a nation and generally improve the lives of citizens. By most objective measures we do a pretty good job," he said.

"But we should aspire to having the best performing state sector in the world; to provide the right services, in the right way, at the least cost. Governments collect taxes in order to pay for useful things, but taxes can discourage people from saving, working or investing in human capital, and taxes can reduce the incentives that businesses have to produce, create jobs, invest and innovate."

The impact of government spending on economic growth depended on the level of expenditure but also on the type and quality of expenditure and the mix of taxes used to finance it, he said.

"There is mixed evidence as to what types of expenditure really matter for growth. However, the Treasury believes that New Zealand has a significant chunk of spending in areas that are unlikely to enhance economic growth," Mr Kibblewhite said.

"The economic benefits of lower taxes need to be balanced against other spending objectives, but all spending programmes need to meet a high burden of proof that they really do boost New Zealander's living standards."

The report noted that the level and make-up of spending was in line with OECD averages but the share of total government spending in GDP increased significantly over the past five years, driven by increases in central government spending.

- NZPA