Treasurer Speech - Tax Cuts
Hon Bill English
Treasurer
MP for
Clutha-Southland
Speech to Tauranga National
Party
Tauranga, 7am, 6 July 1999
Embargoed until delivery, check against delivery
I'd now like to set
out my thoughts on an issue that has been the subject of
an increasing amount of media and public attention and that
all of you will
have some views about - tax.
There
are two points in the stories you have seen that are true.
The
Government wants to lower taxes, and this weekend I
will be setting out my
proposals for the next steps in
our tax reduction programme.
This Government has lowered
taxes, and will continue to get them down because
we
believe people have a right to keep as much of their
hard-earned money as
possible.
We want to see people rewarded for their work.
We want there to be an
incentive to work, and as many people in jobs as
possible.
We want there to be better returns on education and skills.
And we want families to be
better-off. We know that doesn't come from
benefits -
you can't make people better-off by paying them benefits -
but from
work.
The Government is also well aware
that our businesses are better placed
against
competition from overseas when costs, including tax, are
lower, and we
know that lower taxes help economic
growth.
This is because individuals and small and large
businesses in the private
sector drive economic growth
and create jobs, not the government. Government
can't
do those things and shouldn't do those things and too much
government,
with high taxes, stifles growth.
We
need people investing, taking chances, and working hard and
knowing it's
worth the effort.
Internationally the
better performing economies have lower overall tax takes
and dynamic private sector businesses.
This mix is
understood around the world, and by the modern left-wing
in
politics. Tony Blair in Britain pledged not to
raise taxes and is now
lowering them. The Social
Democratic party in Germany has already announced
tax
cuts to help the average earner and make Germany more
competitive.
Japan's initial response to its slowdown
was to cut taxes to stimulate growth,
and Australia is
moving to reform its tax system and lower corporate
rates.
In New Zealand as well, there is now a far
greater understanding of the role
of tax.
PAYE has
meant the collection of most tax is painless. We would have
had a
different attitude to taxes earlier if people had
to write a cheque to the
government each week, instead
of receiving pay-packets with the tax already
out.
At that point it's pretty clear that government money is
taxpayer money.
Especially when, if government
expenditure is averaged out, that weekly cheque
from
every man woman and child would be around $180.
Even so,
this debate has moved a heck of a long way since we first
started
seriously designing the first of our major tax
cuts in 1995.
Since the Budget the feedback I've got
from middle New Zealand has been
interesting. People
have been saying: we know government assistance is being
targeted, we understand that, and it's fair. But we don't
get any of that.
For us to get ahead, we need lower
taxes.
The public likes the idea of lower taxes. Having
seen their take-home pay
improve, they like the idea of
keeping more of their money - and they now know
that
tax cuts don't have to "cost" anything.
In the last six years:
Net public debt has been slashed by more than half
Spending on education and health has gone up by more than 40%.
And we're now leaving $3 billion of taxes
and targeted assistance in
peoples' pockets.
A
dynamic growing economy, jobs, better incomes, less debt,
more and better
quality health and education spending,
and lower taxes are not mutually
exclusive. This
Government has showed, given good policy, they can all
be
delivered at once.
This is why we are now
working on the design of the next stages of our tax
reduction programme.
Until 1996 our top income tax rate cut in at the level of the average wage.
The first stage
saw a significant reduction in the middle tax rate - from
an
effective rate of 28c to 21c in two steps in 1996
and 1998. And the threshold
at which this rate applied
was pushed out from just under $31,000 to $38,000.
The
middle rate was chosen as this was the best way of
benefiting the majority
of workers. So anyone working
and earning more than $9,500 a year - that is
anyone in
full-time work - now pays less tax.
This has increased the spending power of working families.
From July 1 last
year, a single income family with four children under 13
which earns $35,000 will be receiving $118 a week more in
the hand - more than
$6,000 a year - as a result of tax
cuts and family assistance improvements
since July
1996.
Obviously, the tax cuts alone have not delivered
all of this increase in
income. With the tax reduction
package aimed at low and middle income working
families, a number of other components were introduced to
target the gains.
Again these were introduced in steps
in 1996 and 1997.
Family support was increased by a total of $5 per child a week.
Guaranteed Minimum Family Income rose by $12 a week.
And a new Child Tax Credit
was introduced for low income working families,
giving
many families another $15 for each child a week.
I
should also remind you, that we included in the tax
reduction programme in
1996 measures to further
encourage beneficiaries into the workforce.
The major
move was to encourage people receiving benefits to become
involved
in part-time work and so lift their incomes
and move closer to self-reliance.
For all main
benefits, people are now allowed to earn up to $80 a week
before
they lose any of their benefit. Further, people
receiving Domestic Purposes,
Widows or Invalids
Benefits can earn $180 a week instead of $80, before
their
benefit reduces at more than 30 cents in the
dollar.
For someone receiving the DPB with two children
earning $180 a week from
part-time work, the tax
package and abatement changes have been worth an extra
$62 a week.
These changes had a rapid effect on the
number of beneficiaries working. In
April 1997 there
were 3,500 more people receiving the DPB who had
part-time
work worth more than $80 a week, than in July
1996.
What became a three year programme from 1996 to
1998 is now leaving over $3
billion in New Zealanders'
pockets.
This represented a reduction in government
revenue of around 10%. But
economic growth, in part
stimulated by lower taxes has seen government revenue
in 1995/96 of $32.2 billion, after $3 billion worth of tax
cuts, increase in
1998/99 to $36.5b.
Obviously,
however, we had to be running large surpluses to sustain
tax
reductions of that scale and our other economic and
fiscal priorities at the
same time. In 1995 we set
down various pre-conditions before we would move on
this programme.
With the impact of the Asian Crisis and
now two years of drought, and a
corresponding reduction
in our forecast surpluses, we do not have the capacity
for large scale tax reductions at this time.
But with
the economy now recovering steadily, and stronger than
forecast
growth flowing through to higher revenue flows
and a stronger fiscal position,
we are able to look at
continuing, relatively small, affordable tax
reductions.
This Government is not about to do anything
damaging to the economy, or that
raises doubts about
our commitment to good fiscal management.
Signals about
the government's fiscal management and debt reduction are
very
important when the current account remains around
present levels, and we are
also determined to maintain
high quality social services.
As I have said before, tax
cuts do not have to come at the expense of
education or
health or police.
Over the next three years we already
have $3.6 billion available in total for
additional
initiatives - that is $600 million in extra spending each
year.
In this year's Budget the Government funded around
$146 million in tax
reductions - the removal of stamp
duties, and new Parental Tax Credit - within
a similar
sized provision.
This demonstrates that through
effective management of its expenditure the
Government
can reduce debt, increase resources to priority social
spending and
undertake some tax reductions, while
remaining within budget.
Future tax cuts will occur alongside:
increasing fiscal surpluses
decreasing debt
and more spending on quality social services
We are not setting any rigid pre-conditions for
debt levels as we did in 1995
because net public debt,
at under 22% of GDP and falling now presents far less
risk than in 1994/95 when it was still at 37.6%.
Our plans are responsible and have been carefully considered.
This includes economic factors. We need economic growth to
continue and we
will ensure there is no additional risk
from the current account, and that
inflation and
interest rates won't be significantly affected.
We want
lower taxes - but we want other things too. We recognise
that taxes
pay for these communal services - our health
and our education and justice
systems.
But this
government recognises where those taxes come from. Out of
the
pay-packets of working New Zealand.
People shouldn't be punished by taxation for trying to get ahead through work.
It is that work that builds New Zealand's future.
That's why Labour's proposal to raise taxes is
bad news for New Zealanders,
for jobs and for economic
growth.
At least the public now knows where it stands.
Helen Clark has confirmed
Labour's natural instinct is
to raise taxes. And Jim Anderton will be doing
everything in his power to raise them more.
That is the
stark difference between the Government and Labour and
the
Alliance
We believe we should be very careful
with what is your money, and take as
little as is
necessary in the form of taxes.
They want to spend your money for you.
New Zealand does not have the living
standards that we aspire to. Lowering
income taxes is
one way of making progress on that front.
The idea that
you can raise taxes and get ahead - that you can tax your
way to
prosperity - just isn't credible.
ends