National tax cuts favour top earners

By VERNON SMALL deputy political editor

National is promising to slash tax on businesses and the highest paid 8 per cent of income earners next year as part of a long-term plan to lower taxes.

Leader Bill English yesterday conceded that the plan would be controversial.

But he said the measures, estimated to cost $815 million next year, would help to lift economic growth and therefore benefit the whole country.

"Lower taxes are good for the economy and National makes no apologies for implementing policies that will encourage growth and benefit all New Zealanders.

"We don't believe in the politics of envy, where people are needlessly punished for being successful."

The cuts would give $46 a week to someone earning $100,000 a year and $117 a week to Mr English on his current salary of $162,200.

Those earning less than $60,000 would get nothing.

"We will look separately at supporting families and children and households on low and middle incomes," Mr English said.

National could afford the cuts because it did not back Finance Minister Michael Cullen's superannuation fund, which would take $2 billion a year. National would also run lower surpluses.

"We believe faster economic growth over the next 30 years is a better option than higher taxes and higher debt feeding a large Government fund invested mostly outside New Zealand."

National would also increase spending by $800 million next year - similar to the Government's planned increase.

Mr English said the party had focused on the national interest, not take-home pay, in setting its tax policy.

It was immediately welcomed by business, but was slammed by unionists and the opposition.

Dr Murray Horn, chairman of the Business Roundtable, said a medium-term target of 25 per cent for personal and company tax rates was "exciting and achievable".

John Adams, a director of a Hamilton-based civil engineering company, Davies Transport, which has 28 staff, said the tax cuts would be welcome as income for directors or for reinvestment.

"We pay too much tax - by the time you pay GST and ACC and God knows what else, everything that moves is taxed."

But he did not think the tax breaks would be enough to win the election for National.

"I think they're too far behind the eight-ball at the moment.

Council of Trade Unions president Ross Wilson said National had returned to the tired old policies of the 1990s by promising tax cuts for the rich.

Meanwhile Dr Cullen said it was "classic National" policy and a return to the "discredited trickle-down theory".

"Ministers will get a [tax] cut of about $120 a week. Those whose earnings are $120 a week will get exactly nothing."

He said it was "purely ideological" to say cuts would boost sustainable growth. That had not been so in the 1990s.

He said a looser fiscal policy could give a temporary lift but then higher interest rates would curb growth.

"Any idiot who is a minister of finance - and we've had a few, I suppose - can stimulate the economy by running a very loose fiscal stance for a short period of time."

Dr Cullen said Mr English was trying to spend the superannuation fund.

But Mr English said National was putting its priority on people paying tax now, although the party was committed to the current state pension level.

Asked which group most needed an increase in take-home pay, Mr English said beneficiaries did.

But he said he was not signalling a rise in benefit rates.

National is promising to lower the 39 per cent tax rate, paid on income above $60,000, to 35 cents next April. At the same time, the corporate rate would drop from 33 per cent to 30 per cent.

Then National would cut the corporate rate and the top personal rate by one cent in the dollar a year. By April 2005 the corporate rate would be at 28 per cent and the top personal rate would be at 33 cents.

In its second term National would continue the cuts at one cent a year until the top personal rate and the corporate rate reached 25 per cent.

The policy is the first of a series of announcements National hopes will reverse its electoral fortunes. A TV3 poll last night showed its support at 28 per cent - half that of Labour.

Future announcements would expand on plans to manage state assets, boost skills in the workforce and encourage innovation, and reintroduce competition to ACC.

The party would also detail its plans to set up a ministerial commission to recommend changes to areas of major impact on business compliance costs, such as the Resource Management Act, hazardous substances, health and safety, privacy, local government and financial reporting laws.