'Bold steps' in Govt's programme - Key

John Key. Photo / Mark Mitchell

Prime Minister John Key says he accepts some of the things to be announced today in the Government's policy programme for the year ahead could erode his political popularity, but believes the new direction will benefit the country economically.

Mr Key said he believed he would get both political and public support for the Government's programme, which he will deliver in a speech in Parliament after 2pm.

"I believe New Zealanders will see we are serious about a growth agenda, about lifting wages and opportunities for New Zealanders.

"I think they will see that we've carefully considered the position that there is balance, but we are taking some bold steps, I believe, to transform the New Zealand economy," he told reporters today.

The economy and tax reform will be the centrepiece of the speech.

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 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.

Some MPs have expressed concern that an increase in GST would hurt lower income people even if the Government tried to compensate. Changes to property tax have also worried others, who say it could both increase rents and decrease property values.

There has been intense debate about all the recommendations and Mr Key said not everyone would be happy with the Government's decisions.

"We are being asked to make some significant changes, but to do so without the fiscal head-room just to give away lots of extra money. That adds a different and more difficult dimension."

Mr Key said the line the Government was taking could cut in on his political capital, but that was to be expected.

"That may be the case, but in the end you're in politics to make a difference for New Zealand...I want to make sure that in my time in office I make a difference to making New Zealand a wealthier country, where our kids want to stay here.

"In the end political capital is a bit of an abstract concept, and whether people support our vision for New Zealand will be determined at the next ballot box. But in the end I've got to do what I think is right - and this is what I think is right."

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

- NZPA