Surpluses key to Act tax plan

By BRIAN FALLOW economics editor

The Act party is looking to projected budget surpluses to cover immediate tax cuts worth $2.9 billion a year.

Act leader Richard Prebble yesterday relaunched the tax policy foreshadowed at the party's conference in March: immediately dropping the top personal and company tax rates to 28c, which would cost $2.3 billion a year, and shaving the lower personal tax rate from 19.5c to 18c, which would cost another $600 million.

Reaching the longer-term goal of a flat tax rate of 18c would cost only another $4 billion a year, Prebble said. It proposes to get there in stages by cutting the 28c rates by 2c a year for five years.

That would be financed by the stimulatory effect of the tax cuts and a "bonfire" of red tape, each of which would boost economic growth by 1 per cent a year, he said.

Finance Minister Michael Cullen described it as a return to the discredited trickle-down theory.

"It's a sign of madness to keep doing the same thing and expect a different result," he said.

Last month's Budget forecast an operating surplus of $2.3 billion for the year, and $3 billion for the next financial year. From this the Budget allocates contributions to the New Zealand Superannuation fund of $1.3 billion and $2 billion respectively. Act would scrap the Cullen super fund.

Further savings would arise from scrapping the $150 million a year for Closing the Gaps, $40 million for Maori TV, and $200 million from "corporate welfare" such as the regional development schemes.

"Act believes there are further savings in welfare as we get able-bodied working-age beneficiaries back into the workforce," he said.



Prebble was evasive when asked if Act was prepared to risk running fiscal deficits.

"I'd rather not answer it that way. That assumes Cullen is right and cutting taxes makes no difference. Our experience is that cutting company tax rates will boost growth and jobs and that boosts tax revenue."

He said the company tax take had trebled in the decade after 1988 when the rate was cut from 48c to 33c.

To reduce compliance costs, Act's policy is a review of all existing regulations and a Regulatory Responsibility Act to ensure all new regulations are cost-benefit positive.

Prebble said compliance-costly laws on accident compensation, employment relations, occupational safety and health and the Resource Management Act needed a rewrite.