National leader Don Brash today backed off his early plans to cut the top tax rate to 30 per cent, saying those in the higher salary bracket will have to "be patient".
After ousting Bill English in October, Dr Brash said having a surplus of $5.6 billion meant the company tax rate and the top tax rates could be cut to 30 per cent at a cost of about $1.7 billion.
But in a speech to the Institute of Directors today he said the top rate would not be cut immediately upon National gaining office.
"For this audience, the good news is that the company tax rate would come down," Dr Brash said.
"The bad news is that reductions to the top personal income tax rate will be gradual."
As well, a National government would provide tax relief for low-to-middle income families.
Now the company tax rate is 33 per cent and the top tax rate 39 per cent.
Dr Brash said he was aware there would be disappointment he was not signalling a commitment to an immediate and substantial reduction in the top rate.
As well, purists would highlight the undesirability of having such a large gap between the top tax rate and his proposed 30 per cent company rate, he said.
"In effect, what my colleagues and I are doing is asking those in the higher salary bracket to be patient.
"It is our judgement that a programme which affords relief to the hard-working, heavily taxed New Zealanders in the middle income area, with small, gradual changes to the top rate over a number of years, is the type of package most likely to receive the consistent electoral support which would underpin a commitment to sustained growth in real incomes in New Zealand."
Dr Brash said the Government had accumulated large budget surpluses while families were struggling to make ends meet; the Government had raised an extra $3.6 billion in extra tax in the past four years, which equated to $2600 per household.
"Tax cuts would allow parents that crucial extra margin for clothes or sports equipment for their children, or for music or sports tuition, or would contribute to childcare costs, and so on through the endless list of needs a young family has," he said.
"Instead, this Government has allowed the budget surplus to grow for our years while families have had to cut back."
Reducing tax rates did not require a government to slash spending, Dr Brash said. What was required was that the growth rate of government spending was kept just below the growth rate of the economy.
"That requires discipline. National will provide that discipline."
Finance Minister Michael Cullen told NZPA if the proposed cuts were put in place millions would be siphoned off overseas by the foreign owners of New Zealand businesses.
"The entire benefit will end up in foreign hands, because for New Zealand business owners and shareholders the company tax is really a withholding tax, which is offset against personal tax," Dr Cullen said.
"For a foreign owner or shareholder it is the final tax paid.
"The effect would be that hundreds of millions of dollars -- money now available for health, education, business assistance and regional development -- would simply be transferred out of the country."
ACT Party finance spokesman Rodney Hide said he was disappointed that Dr Brash would not "immediately reverse (Prime Minister) Helen Clark's 39 cent envy tax".
"That tax for New Zealanders earning over $60,000 is wrong, it isn't needed, and it is counter-productive," he said.
"We should be aiming to drop the top rate of business and personal tax to 25 cents in the dollar within three years of taking office.
"It is clear that Dr Brash and the National Party are going to compete head-to-head with Labour voters in the centre."
Those who believed lower taxes were critical to economic growth should vote ACT to provide a coalition partner and a "strong principled base for a Dr Brash-led government."