John Armstrong: Key's growth package just tax cuts in disguise

Prime Minister John Key is delighted after delivering his speech yesterday. Photo / Mark Mitchell

Wait patiently for three months for the real oil in the Budget before passing judgment on the Government's latest and seemingly insipid prescription for shifting New Zealand's sluggish-performing economy into the growth fast-lane.

That is the message from Government insiders. Only then, they say, will the exact extent of sweeping tax cuts planned to take effect from this October become evident.

National took a fair bit of stick yesterday in the aftermath of the Prime Minister's tabling of his Government's new 23-page economic and social policy programme in Parliament - most of it without flinching.

The Government remains unconcerned that between now and the Budget in late May, Labour and the Greens might sway those on middle and lower incomes into believing they will suffer from the projected rise in GST from 12.5 to 15 per cent.

National is quietly confident it can compensate middle and upper income households handsomely for the rise in GST and those on lower incomes adequately to meet the extra cost of food, fuel, housing and other bills.

A simple political axiom is responsible for that distinction. The lower paid largely don't vote National. Those who earn more do. A land tax would have been political suicide in mortgage-belt New Zealand. Likewise a capital gains tax. In contrast, lifting GST should provide enough revenue for large enough tax cuts to keep middle New Zealand voting National.

Yesterday's programme is a tax cut package masquerading as an economic growth package.

As for something which could generate substantial growth - a major cut in the corporate tax rate - the statement says nothing. The Government is instead relying on a lot of disparate things making a big difference - such as increased funding for research and development and spending on infrastructure.

Those expecting something special will be disappointed. On a measure of economic boldness, John Key's statement scores about four out of ten.

Where is the equivalent of Singapore's 20 per cent corporate tax rate to encourage investment? Where are the mechanisms and incentives for New Zealanders to boost savings and investment? Why isn't the Government flagging far tougher measures to discourage property speculation?

An increase in GST may encourage more savings as people reduce consumption. It might increase productivity by making it more worthwhile for people to work because they are seeing more money in their pockets as the result of personal tax cuts. But simply lifting GST is hardly a sufficient panacea to produce the "step change" in the pace of economic growth to which John Key says the Government is committed.

Where the Government has gone out on a limb is firming up its intention to allow mining on Crown land, including parts of the conservation estate. Even here, though, it has come up with a sweetener in the form of a Conservation Fund drawing on royalties from mining to fund special conservation projects.

That is a clever move politically. But it is typical of the document. As shown with a further hint that National is backing away from allowing league tables showing primary schools' performance on national standards, even when this Government is seemingly staunch to principle, the politics lurk not far behind.