We should acknowledge the past years have been challenging for New Zealand because of the combined effects of the global financial crisis and the natural disasters that have occurred domestically. Against these odds, New Zealand has done much better than most of the developed world. It has produced solid economic growth, created jobs and thereby established a much better fiscal position than, say, Australia.
As a nation, we have worked hard to get to where we are. Now is the time to share our progress. We have to share it with those who have contributed to it. We also want to share it with our children to whom we want to leave a bright future.
To do so, we want to help those who need it most. For high income earners, the top income tax rate is modest and internationally competitive. But that top rate of income tax is reached relatively early, so we should focus tax cuts in the lower bands and look as much to the effective marginal tax schedules as to the income tax rates. These tax cuts would make a difference to middle New Zealand, particularly at a time when people on ordinary incomes are stretched by high rents and property prices.
I agree. The rate of the top tax rate at 33% is pretty good internationally. While a case could be made for lowering it, I think the better thing is to focus on increasing the threshold at which people move to the top and second top tax rates.
People move onto the top tax rate at $70,000 which is very low. And the second top tax rate of 30% gets hit at $48,000 – below the average income.
Acknowledging this housing crisis, we should use a second tranche of the surplus to help councils deliver more infrastructure quickly. For example, the government could pass on the GST revenue from new housing construction to councils. This would be an investment into the infrastructure that New Zealand needs for the future, and it would address one of the main reasons for the housing crisis.
Some extra spending on infrastructure would be a good thing.
Finally, we should use the surplus to pay down debt. Circumstances beyond our control have increased the Crown’s indebtedness over the past years. We should not leave it to our children and grandchildren to pay for it. Instead, let’s sort out our books now and reduce government debt to where it was before the global financial crisis.
Bringing down the Crown debt ensures the government has fiscal room if another natural disaster strikes.
Or another recession. On average we get one every ten years or so. We have had:
- 1967 – recession
- 1976 – recession
- 1987 – sharemarket crash recession
- 1997 – Asian crisis recession
- 2008 – GFC recession
This would be my narrative, to share New Zealand’s progress in equal measure between lower income-band tax cuts, investment in local infrastructure and leaving a better fiscal future for future generations.
This is what I’d like to see from the Government. The parties of the left sadly seem hostile to any reduction in the tax burden. They would blow everything on extra spending. But a balanced Government would have everyone share in the progress the New Zealand economy has had.