Shewan on Budgets

June 30th, 2012 at 11:00 am by David Farrar

John Shewan also talks about best and worst budgets:

One of the last big projects Shewan completed at PWC was to review New Zealand’s last 34 government Budgets.

The best finance ministers included Ruth Richardson, Michael Cullen and Bill English “all in their own way”, during different eras, Shewan said. Cullen, especially, was an “unsung hero” for holding government spending down early in his time as finance minister.

Bill Birch and Winston Peters were treasurers during a “non-reformist period of lost opportunities”.

Shewan said that one of the lessons of history was that, “You have to keep reforms going, otherwise you end up facing bitter medicine in the end.

Australia has managed that - continuous reform.

In the course of clearing up his office earlier this month, Shewan found a government booklet from 1981, from the height of the Muldoon era. There were 45 pages of incredibly generous tax incentives for business.

The bad old days, that some want to return to. They now call the loopholes and incentives “green jobs”.

“Without doubt” Muldoon was the worst finance minister of the past 34 years and did the most damage to the economy.

“But I don’t think he realised. I think he genuinely believed what he did would work,” Shewan said, even though Treasury and others advised against his decisions.

The damage was huge and took a long time to fix.

“I’m sad we haven’t learnt from those mistakes,” Shewan said, given the huge blowout in government spending between 2004 and 2008.

“That will be another era that will be judged extremely harshly when government spending grew 60 per cent. It takes a long time to recover from that,” he said.

In the early 2000s, the Clark government enjoyed huge Budget surpluses. “And in my view Michael Cullen did a good job in keeping a lid on spending between 1999 and 2005,” he said.

But in 2005 the government campaigned to bring in massive spending increases such as interest-free student loans and Working for Families, which led to significant “middle class welfare”.

“Often the worst policies are the ones announced on the hoof during an election campaign with no consultation,” Shewan said.

Interest free student loans are a prime example.

However Shewan gives credit to Cullen.

“Cullen is an unsung hero for being ruthless in stopping fiscal promiscuity in the early period of the Clark administration,” Shewan said.

“He was a clever and talented guy, for whom I had great respect though I crossed swords with him [on some issues].”

Cullen did salt money away in the New Zealand Superannuation Fund, when the Government was running big surpluses. …

Present finance minister Bill English had come in during an extraordinarily challenging period, when the economy was already heading for the rocks, even before the Global Financial Crisis hit, then the GFC did hit, followed by the Christchurch quake.

“He has achieved basically zero growth in government spending – that’s a huge achievement,” Shewan said.

It would be interesting to see his ratings for all the Budgets.

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Shewan on taxes

June 30th, 2012 at 9:41 am by David Farrar

James Weir at Stuff reports:

New Zealand should move to a low-level land tax and cut personal tax rates, retiring PricewaterhouseCoopers chairman John Shewan says.

He also says the “elephant” of rising national superannuation costs means a rise in the GST rate to 17.5 per cent in coming years was “almost inevitable”.

Shewan had his last day as PwC chairman yesterday. PwC partner Jonathan Freeman has been elected the new chairman.

Shewan said a land tax rate should be low, perhaps 0.5 per cent of land value each year, and be assessed like a city council rate, with an offsetting fall in the personal tax rate of a few percentage points.

“I still think that is the right thing to do,” he said. That idea was rejected by the Government when proposed by the Tax Working Group, which Shewan was part of. “I regret that,” he said.

High taxes on personal incomes were the most damaging to the economy for growth and jobs. The most efficient taxes were those people could not avoid, such as tax on spending like GST or tax on land “because you can’t hide it”.

I agree with a land tax, so long as other taxes are reduced to compensate. Land tax is both unavoidable, but also encourages better economic use of land, unlike income taxes which actually discourage labour.

New Zealand’s tax system was a “complete wreck” in 1984, but was now one of the strongest and most robust in the world.

The basket cases of Europe, such as Greece, Italy, Spain and Portugal, shared a common thread of poor tax systems, with high levels of tax evasion and fraud. “They regard paying tax as voluntary,” he said.

In contrast, in New Zealand most felt they should pay their fair share of tax. Shewan said he was “very proud” of the tax system here.

It is one of the better ones around, so long as we resist the stupidities such as GST exemptions for fresh fruit and vegetables.

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GST to 15% and top income tax to 45%

October 20th, 2008 at 8:57 am by David Farrar

Labour have left the economy with a projected decade of deficits and the latest economic news, coupled with Labour’s massive spending promises, could push the country into a structural deficit.

Top tax expert John Shewan has looked at what might have to be done to break out of Labour’s decade of deficits. He says GST might need to go from 12.5% to 15.0% and the top tax rate from 39% to 45%.

Is this what Labour has planned for its December mini-budget?

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