KEY POINTS:
A group of heavyweight business interests have laid out their dream tax-cut package, calling on the Government to make a bold move and cut all personal taxes to 30 per cent or less.
The group, comprising the Business Roundtable, Chambers of Commerce, Federated Farmers and the Institute of Chartered Accountants, have issued a paper calling for the drop in tax rates as the Government prepares a three-year programme of cuts for the Budget in May.
The group is also suggesting Working for Families should be cut back and no new concession schemes be introduced.
The paper, recommending what the Government should do in its Budget this year, said lower, flatter tax rates were an incentive for hard work and saving and promoted economic growth by encouraging investing.
They also helped to stop tax avoidance by people trying to find ways not to move into higher tax brackets.
The paper estimated the Government could spend $2.5 billion a year on tax cuts without serious impact on inflation and if state spending was kept under strict control.
The group's dream package comes in the buildup to the Budget - when Finance Minister Michael Cullen is expected to introduce a three-year programme of tax cuts.
Dr Cullen has set aside $1.5 billion for cuts but has not yet given any indication of the size of them or how widely they will apply.
The group said the tax system should be designed to promote economic growth, rather than as a tool for redistributing wealth, saying "at present New Zealand's tax policy is lacking in strategic direction and vision".
"The wage gap with Australia can not be closed by redistribution - it requires growth. A bold package that aligns all income tax rates at 30 per cent or below would increase productivity and economic growth."
They said cutting taxes across the board was better for growth than simply adjusting the thresholds at which higher taxes kicked in because adjustments would benefit a relatively small number of people.
The paper also cautioned against extending schemes such as Working for Families or introducing other tax "concessions" because people became wary of earning too much to qualify for them and they made the tax system too complex.
Of Working for Families itself, the paper recommended a reduction in assistance for higher-income families which qualify for the scheme because the lower tax rate would provide the same assistance.
The group also advise against introducing a tax-free threshold, saying a low-income rebate was the simplest system for helping poorer families.
The group said that while a flat tax was the best solution for fiscal drag - the effect of increasing numbers moving up into the higher thresholds - some threshold adjustments to benefit lower income taxpayers could form part of an overall package.
A spokesman for Dr Cullen said he had not yet seen the report and repeated his previous statements that any tax cuts had to meet his four rules: they must not exacerbate inflation, must not require cuts in spending, must not require further Government borrowing and must not create inequalities in society.
The group's report says their proposal is affordable "provided firm control is exercised over government spending".
It said slowing the current growth of Government spending would help to finance the tax cuts without resulting in cuts in services.
It could also be done without government borrowing for operating purposes, and argued there was capacity to fund more capital spending by debt without a significant change to forecast debt-ratio numbers.
It said the impact on inequalities was minimal and although the cuts might have a "one-off, not on-going effect" on the consumers price index, inflation could be controlled by firm monetary policy.
