Editorial: Tax boldness could prove Brash's friend

Opinion

Few proposals are more welcome than those that leave more money in people's pockets. Thus, the final shape of the National Party's tax policy is the subject of much curiosity - and no little concern for the Government. Don Brash has been coy since promising lower tax for all "working New Zealanders" in the first Budget of a National-led administration. If anything he has tried to play down prospects of large big-bang tax cuts. But a rethink might be advisable, given the manner in which the Australian Budget has dramatically tilted the landscape.

That Budget handed Australians A$21.7 billion ($23.2 billion) in tax cuts by lifting the threshold at which the escalating scale of tax rates bite into income. It signalled Treasurer Peter Costello's commendable eagerness to immediately hand back surplus Government funds to taxpayers. And it indicated a key point of his party's differentiation from the Australian Labor Party.

The question now for Dr Brash is whether he will match Mr Costello's boldness, whether he is prepared to announce a policy that will stand in stark contrast to that of the Government. There are clear advantages for such an initiative. Simple tax cuts are easy to understand, far more so than the tax breaks for savers and businesses that Michael Cullen will unveil in the Budget. Furthermore, the imposition of the carbon tax, among other measures, has fuelled a widespread perception that New Zealanders are overtaxed. Why not appeal to the two-thirds of the electorate who, surveys indicate, reckon they are paying too much tax?

One reason is that the Government has been seeking assiduously to portray across-the-board cuts as no longer affordable. It has been quick to seize on a predicted modest slowdown in economic growth over the next 12 to 18 months. Last week, Dr Cullen said the Budget would show there was "little room for large new initiatives, including tax cuts, if we are to stick to our long-term debt commitments".

The Budget will endeavour to reinforce this perception by highlighting the Government's cash position. There will be no mention of the operating "surplus". The term has been banished from Beehive nomenclature because the presence of very large surpluses - the latest Crown accounts show $7.95 billion - was building both unrealistic spending expectations and the case for tax cuts.

Quite reasonably, National is awaiting the release of the updated Government accounts in the Budget before detailing the scale and scope of its tax policy. It must decide whether Dr Cullen is being fiscally prudent; that he is right in saying tax cuts would unreasonably ramp up the debt-servicing charges that future taxpayers have to meet. Or whether his policy of denial is merely the cloak for a redistributive urge, one so rapacious that it is hobbling economic growth, punishing enterprise and hard work and encouraging fiscal indiscipline. And whether, finally, the accounts, and the potential for tweaking the Government's proposed spending priorities, allow for the grand gesture of Costello-like cuts.

If the accounts suggest caution, there may be reinforcement for that sentiment in the present air of economic uncertainty. A slowdown had been forecast for three years, but the economy has proved remarkably resilient. If tax cuts could entail a high economic - and a probable political - cost, the sensible course, obviously, would be to promise a moderate reduction in personal and company income tax over time.

But if there is room to move, Dr Brash should be daring. Traditionally, National has been committed to reducing the tax burden on New Zealanders. That principle should be upheld vigorously. The state has no right to take more of the earnings of people than it reasonably needs.

Tax is a key point of distinction between the two major parties. One that National should not be slow to highlight.