Status quo survives $1m tax review

By VERNON SMALL

After more than a year and almost $1 million, the Government's "apolitical" tax review has come up with a formula for a better tax system.

It is neither apolitical nor will it lead to any significant changes to the tax system, at least as far as the voter in the street is concerned.

Finance Minister Michael Cullen was yesterday making a meal of what he called "the big, heavy stuff" in the McLeod report, especially a suggestion to cut the tax rate on new international investments.

He sent that idea off with the ministerial seal of approval for more work by the Treasury and IRD.

But what the review was all about to most voters was the recommendation to lower taxes, end excise duty on cigarettes, liquor and poker machines (in exchange for a rise in GST) and the off-the-wall idea of a tax on the family home.

No Government was ever going to tax the family home in a country so wedded to the quarter-acre paradise. The McLeod committee shed its purist approach and scratched it. But most of its surviving recommendations have been dumped by Dr Cullen in what amounts to a stake in the ground for the status quo.

Yesterday he ruled out Labour campaigning on changes to any of the high-profile taxes - personal, corporate or GST - next election.

What has survived - particularly tax breaks for incoming investment - will give Dr Cullen something business-friendly for the next Budget and election if the mandarins can find a way to make it workable. At an annual cost of $50 million, it is already very affordable.

Beyond that there are few votes in meddling with tax rates, especially with pressure on to maintain and increase social spending.

It is a realisation gaining traction on both sides of the political divide.

Before the last election, Bill English was enthusiastic about corporate tax cuts but wary of appearing to reward the wealthy at the expense of the poor - until he was overruled by Jenny Shipley.

Now he is running the cutter and has taken a rain check on lowering taxes. Sometime. Maybe never.

So if the tax review's most far-reaching recommendations were doomed to failure, why did we spend $1 million on the exercise?

Cynically, the review was Dr Cullen's answer to the pesky question: what will you do about the Alliance's call for higher taxes?

Next question: what will he do after the next election to keep the Alliance inside the tent and deal with the Greens' calls for eco-taxes?