Key Points:

Sir Roger Douglas' prescription for the economy is nothing if not radical.

His longstanding belief in the liberating and economically transformative properties of tax cuts and competition is undiminished.

But this time there is twist.

People would be able to opt into the regime he proposes - a flat tax rate kicking in above a high tax-free threshold, in exchange for taking care of their own needs for superannuation, heath care and accident compensation.

But they would be free to stick with the "failing" status quo of high taxes and monopoly-run health, welfare, education and superannuation services, he says. In other words, we would have two very different tax and entitlement systems running in parallel.
Apart from the administrative complexity and cost, there is an obvious problem.

People who pay most tax under the present system would have most incentive to opt out of it, while those who benefit most would have every incentive to stay in.

At present people in the top tax bracket ($70,000 plus since last October) provide nearly half of the income tax take and a fifth of the Crown's revenue from all sources.

But they represent just 10 per cent of the taxpaying population and, all else being equal, a similar proportion of claims to New Zealand Super, healthcare and so on.

Even without a rapidly ageing population, the chances of a big fiscal hole opening up there seem high.

But Sir Roger is sanguine: "This will easily pay for itself over time, and it is not hugely negative even in the short term."

To be fair, yesterday's Orewa speech was a broad-brush affair. A more detailed and quantified paper is yet to come.

The Douglas plan is to have no tax payable on the first $30,000 of income or $50,000-plus for those with children. Above those thresholds a flat rate of tax would apply starting, Sir Roger reckons, at 25c or 30c in the dollar and reducing steadily to 15c over the next 15 years, with the corporate tax rate.

Individuals opting into the system would be expected - that is, required - to buy "catastrophic" health insurance and cover against major injuries, and would have individual accounts for superannuation.

It all sounds very self-reliant.

But when insurers fail, like HIH in Australia or AIG in the United States, the pressure for a taxpayer bailout is overwhelming.

And on the retirement income front, too, people would be entirely at the mercy of the market and any repeat of the massive wealth destruction of the past six months.

There would be a guarantee that people would receive no less under the new system than under the existing one. It sounds like the old game: privatise the gains, socialise the losses.

That's pretty popular these days.