Brash on Tax

Don Brash gave the keynote speech this morning to the tax conference of the NZ Institute of Chartered Accountants which I have been attending. He was somewhat surprised to see me there, asking if I had become a tax accountant in my spare time 🙂

Some key quotes are:

From the outset, [the busines tax review] it was hyped by the Ministers of Finance and Revenue as being a big and bold review, the bigness and boldness of which might frighten its readers. When it arrived, however, the Review turned out to be anything but big and bold. In fact it was an embarrassingly lightweight document. It was like being promised a Lamborghini and getting a Lada!

Let me say that we would support a proposal to drop the company tax rate to 30%. This was in fact a key plank of our tax policy at the last election. We think the headline corporate tax rate does matter, given we are competing for capital with countries spread right across the globe. Across the OECD, the trend is for corporate tax rates to decline. The average company tax rate in the OECD is now 27%. A cut in the company tax rate would make New Zealand a more attractive destination for capital, and boost business investment.

The reality is that Michael Cullen has long been opposed to tax cuts, and in particular to business tax cuts. Pressure from Labour’s coalition partner United Future might have brought him to the tax cut well, but we should wait and see whether he is really prepared to drink from it.

As we’ve also recently seen with the KiwiSaver Bill, having the Government come in at the last minute and make major changes to tax bills, after the Select Committee has heard submissions, makes a mockery of the tax policy consultation process. It will be poor law-making indeed if people are not to be allowed to make submissions on these latest proposals, and have them analysed properly by the Committee.

Finally, I would like to talk briefly about National’s position on tax more generally.

If there is one message I would like to leave you with this morning, it is that National’s overall policy on tax remains the same as it was last year and the year before that, and the year before that.

Put simply, we remain committed to lowering tax rates over time. I’ve always been of the view that if New Zealand is to be a more prosperous country, with per capita incomes approaching those of the top countries in the OECD, then we need to reduce tax rates. In particular, we need to substantially reduce personal income tax rates.

This is not to say that such reductions can or should be achieved overnight, or in one large round of tax cutting. A National Government would have other priorities as well, in education, health, law and order, defence and the environment, amongst others, and we believe in effective public services and strong public institutions.

What we need to do is to embark on a programme of incremental tax reform, reducing the tax burden over time as we can afford it. In this regard, Australia is an excellent example to us, having either cut tax rates, or increased tax thresholds, in each of the last five years.

In contrast, we have been standing still, if not going backwards. The shame is that over recent years we have had every opportunity to lower tax rates. Every surprise in the tax take has been on the upside. The Government has had an embarrassing amount of tax revenue to spend, with Core Crown revenue growing more than 60% over the past seven years. But it still couldn’t bring itself to allow those who earn the income to keep a little more of it.

But while our overall tax policy has not changed, the precise formulation of our policies will have to wait until closer to the next election, when we see what shape the economy is in.

Labour and ACT are trying to paint this as some sort of backdown on lower taxes but they are being silly. Anyone who thinks Don Brash is not serious about cutting taxes, doesn’t know him very well. All that has happened is that specifics can not be pledged until the level of surplus and debt in 2008 is known. Treasury estimates this far out can vary by billions so one has to wait for firmer figures.