National's economic policy holds tax cuts, more spending

10.30am

Personal and corporate tax cuts underpin the National Party's economic policy, announced today, which also proposes significant extra government spending.

Tax cuts would be spread over four years, reducing the top personal rate to 32c and the corporate rate to 27c in 2006. Present rates are 39c on earnings over $60,000 and the corporate rate is 33c.

Extra spending is allocated at $800 million in the first term, rising to $1 billion in 2010-2012.

Party leader Bill English said National was embarking on a programme of raising long-term growth rates because meeting New Zealanders' growing expectations needed a strong, sustainably growing economy.

"Our plan for prosperity includes a number of strategies aimed at achieving this goal," he said.

"Things such as upskilling our workforce, cutting business compliance costs and red tape, creating an environment that supports innovation, encouraging private/public sector investment partnerships, as well as lowering taxes -- both business and personal -- are all important."

Mr English said the benefits of a strong economy would give a government the capacity to deliver quality health and education and provide opportunities for young people.

"Lower taxes are good for the economy and National makes no apology for implementing policies that will encourage growth and benefit all New Zealanders," he said.

"Lower taxes are good for the economy, and National makes no apologies for implementing policies that will encourage growth and benefit all New Zealanders.

"We don't believe in the politics of envy where people are needlessly punished for being successful."

National's ability to spend more money is largely based on its decision to scrap the present government's superannuation fund, which it has never agreed with.

"The impact of not having to find the cash (for the fund) combined with our spending and tax assumptions means that National will run lower, but still prudent, operating balance surpluses and have lower debt levels than Labour," Mr English said.

Tax reductions would reduce surpluses left over after a National government had "met the obligation to support those in need".

Tax cuts would be:

* Initial reduction in the top personal rate to 35c and the corporate rate to 30c on April 1, 2003, at an estimated cost of $815 million a year;

* A second tranche of reductions on April 1, 2004, bringing the top personal rate to 34c and the corporate rate to 29c at a cost of $230 million;

* A third tranche starting on April 1, 2005, reducing the top personal rate to 33c and the corporate rate to 28c, costing $240 million;

* A fourth tranche on April 1, 2006, cutting the personal rate to 32c and the corporate rate to 27c, costing $380 million.

Extra spending would be:

* In the first term (fiscal years 2004-2006) $800 million a year;

* An extra $900 million a year in 2007-2009;

* An extra $1 billion a year in 2010-2012.

National's finance spokesman David Carter said New Zealand was a country of small businesses that wanted to become bigger.

"In this regard, New Zealand business is unique and that's why National's economic strategy of lifting the country's long-term growth rates specifically targets people in business," he said.

"Two-thirds of our businesses are owner-operators and are unaffected by corporate tax rates -- personal tax affects them."

Mr Carter said other strategies included measures to reduce business compliance costs, and there would be a major review of legislation -- like the Resource Management Act -- that imposed costs on businesses and stopped them growing.

"Around 85 per cent of New Zealand businesses employ five people or less. Imagine the impact on our economy by making it easier for each of these businesses to take on one extra employee," he said.

Mr Carter described the proposed tax cuts as an important part of National's economic strategy, because New Zealand was a highly taxed country.

"National firmly believes that operating budget surpluses belong to all New Zealanders, so after the Government has paid for the quality essential services, any excess tax should be returned to taxpayers," he said.

Prime Minister Helen Clark, anticipating the policy and speaking before it was announced, said it would contain "tax cuts for the rich at the expense of superannuitants".

- NZPA