Making the case for a 30c tax rate

Tax expert John Shewan has a plan costing just under $2 billion to cut taxes - without needing massive Government spending cuts.

However the PricewaterhouseCoopers tax partner and New Zealand chairman says savings can still be made by reviewing the bureaucracy. His plan is:

* Cut the 39c personal rate to 30c.

* Cut the 33c personal rate to 30c.

* Cut the 33c company rate to 30c.

He says the Government is projecting an operating surplus - or "profit" - of $6.7 billion in the 2005-2006 financial year and average surpluses of $4.8 billion annually for the three years following that. That means the Government can afford his plan.

He argues that even after allowing about $2 billion for the Superannuation Fund to partly pre-fund future retirement costs, there is scope for between $1.5 and $2 billion in tax cuts.

A 1 per cent rise in economic growth would see $410 million extra tax collected, he says.

And it is growth - not redistribution of existing income - that provides better health, education and other services.

"We need to spend more time focusing on the impact of taxes on economic growth," Mr Shewan says.

Advantages of his plan would include substantial tax relief at the mid-rate level, alignment of company tax with the top marginal rate and Australia's rate, simpler tax scales, and the removal of the incentive to shelter income in companies or trusts.

But Finance Minister Michael Cullen says the problem with any across-the-board tax cuts is they deliver the biggest gains to those on the highest incomes.

Mr Shewan's tax cut, for example, would deliver just $4 a week to someone on $45,000 but $82 a week to someone on $100,000.

"This is not Labour's priority," Dr Cullen says.

"We are in politics to ensure that all New Zealanders have access to decent health care, education and housing, and to a decent standard of living in early childhood and in retirement."

Mr Shewan points out that someone on $100,000 pays two or three times the tax of someone on $60,000.

So although it looks like people on lower incomes would benefit little from the package, he says it is not as inequitable as it looks as those at the top of the income scale are paying most of the tax.

He also points out the Working for Families tax credit and income assistance package has meant lower-income families are now getting generous state help - and effectively paying no tax.

He says this year about half of total personal tax will be paid by the 11 per cent of New Zealanders with incomes over $60,000, and a quarter will be paid by the 3 per cent earning above $100,000.

So is the Shewan plan a blueprint for National's yet-to-be revealed personal tax cuts?

Indications are it will be in the ballpark, but National's finance spokesman John Key isn't saying. He only confirms that Mr Shewan's plan isn't National's plan.

Voters will just have to wait a bit longer.