New Zealand taxes to rise and fall, leader signals

Feb 9, 2010, 4:14 GMT

Wellington - Taxes in New Zealand are likely to rise and fall this year, Prime Minister John Key signalled Tuesday in a major speech to parliament outlining his centre-right government's plan to reform the economy.

He said the government was considering raising the comprehensive goods and services tax (GST) from 12.5 per cent to 15 per cent. At the same time, there would be across-the-board personal income tax cuts to compensate, and welfare benefits and pensions would increase, he said.

Key said final decisions had still to be made, pending the annual budget announcement on May 20, but analysts said there was little doubt Key was preparing the country for the changes, which were recommended recently by an independent working group on tax reform.

The GST, first introduced at 10 per cent in 1986, has been unchanged at 12.5 per cent for 21 years, and Key said it was a difficult tax to avoid, no matter how people structured their financial affairs.

'The net result of a reduction in personal income taxes and a modest increase in GST is to give people more choice,' he said. 'Their take-home pay would increase, and they could use that increase to save or pay off their mortgage without being taxed on it. Savings and investment are, therefore, encouraged rather than consumption.'

Key gave no hint of how much the government would cut the top rates of tax, currently 38 per cent on personal income, 33 per cent for trusts and 30 per cent for companies.

He said the government had ruled out other recommendations by the tax reform group, including a land tax and a comprehensive capital gains tax, but would close a gap in the system that allowed property investors to derive income but pay no tax.

Key foreshadowed a crackdown on welfare cheats, making it harder to get sickness benefits and encouraging other beneficiaries to return to work.

He said the government would allow mining in national parks to tap the 'extraordinary economic potential in the mineral estate residing in Crown-owned land' with the sweetener of a conservation fund to be established from some of the proceeds.

Phil Goff, leader of the opposition Labour Party, condemned the policies as favouring the wealthy and opposed the increase in GST, saying it would hurt the poorest people in the community.