Bring in personal tax cuts but link them to saving

January 28th, 2007

Bring in personal tax cuts but link them to savings

To overcome concerns that personal tax cuts are inflationary, the chief executive of the Employers & Manufacturers Association (Northern), Alasdair Thompson, is urging the government to link personal tax cuts to savings in schemes such as Kiwisaver.

"New Zealanders must be permitted to keep more of the money they earn," Mr Thompson said.

"The surplus last year meant government took $8000 per household more than it needed.

"With the surpluses consistently above forecast for many years, the government has found it too easy to increase its own low quality expenditure.

"The government has resisted cuts to personal tax rates on the grounds they would be inflationary but we believe this fear has been greatly overstated.

"Tax cuts will not cause inflation in the internationally competitive tradable sector, which is borne out by the fact that in 2006 inflation in that sector increased by only 1.2 per cent whereas in the non-tradable sector (government and other monopolies) prices shot up 3.8 per cent.

"If government still thinks tax cuts might be inflationary it could easily channel them into compulsory personal savings which would also emphasise the importance of savings.

"EMA supports cuts to both business and personal tax rates because the evidence shows they would stimulate the economy.

"Lower personal and business taxes would lead to more savings, more investment, greater productivity and even greater tax revenues for the government."

ENDS

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