The smoke is clearing from the past year of financial chaos and the road ahead looks bleak. Treasury forecast this week that decades to come of government deficits and slow growth has set taxpayers up for some tough choices. Government debt is forecast to rise to more than 200 per cent of GDP by 2040 as baby boomers start collecting their pensions and checking into hospitals in droves.
Generations X and Y (aged 15-40 now) face decades of higher taxes and falling standards of living as they pay for their parents' retirements. That's, of course, if they're still in New Zealand.
The one certainty of the next 30 years is these unluckiest generations are a mobile workforce. Given they face growing debt and a working lifetime of being priced out of the property market, they could be forgiven for buying a cheap plane ticket to somewhere with higher wages and houses that cost less than five times their income.
So what is required to stop New Zealand becoming a retirement farm off the east coast of Australia? Here's 10 radical reforms that should be adopted next year.
They are politically difficult in the extreme, but any leader able to convince the public - and Parliament - to follow them could set New Zealand up for generations.
1 Introduce a capital gains tax to ensure the property-owning classes think twice before making losses to reduce their tax bills, comfortable they can make it back with tax-free capital gains.
2 Introduce a land tax to broaden the tax system to include those who made $300 billion of tax-free capital gains from 2002 to 2007. Those without property face the biggest tax burden in the years to come. Without some change to tax the rich, the perceived unfairness will drive away our youngest and most productive generations.
3 Introduce a single, flat tax rate at 25 per cent for the income, corporate and trust rate. Set a high tax-free income threshold to ensure the poorest taxpayers retain plenty.
4 Shut down Working for Families and the Student Loan scheme to remove the ruinous marginal tax rates and debts that are building up.
5 Increase GST to 16.6 per cent to help rebalance the economy away from consumption and towards saving. Ensure the poorest who spend most of their income are compensated using extra revenue from the capital gains and land taxes.
6 Reduce government spending growth over the next decade to return core government spending from the current 36 per cent of GDP to the 29 per cent that it was in 2004.
7 Intervene in local district and city councils to consolidate duplication, reduce their combined size, reduce their rates growth and focus them on freeing land for home building.
8 Increase the Reserve Bank's prudential liquidity target for banks so they are forced to raise more funds locally and rely less on cheap foreign funds. This will continue to reduce their profit margins, increase deposit rates, encourage local savings and reduce New Zealand's vulnerability to market freezes.
9 Increase the amount of capital that banks must put aside when lending against land and property to discourage the heavy lending to property investors that powered the 2002-2007 property boom.
10 Raise the retirement age progressively to account for longer life spans and reduce the pension progressively to 62 per cent of the average wage from the current 66 per cent.
Steps to ease the squeeze
AdvertisementAdvertise with NZME.