Tax Review A Quality Resource

"The report of the McLeod Tax Review is a solid platform for future tax policy", the executive director of the New Zealand Business Roundtable, Roger Kerr, said today.

"The Review has confirmed that the basic structure of New Zealand's tax system is sound. The main problems arise because the overall tax burden is too high and the progressive widening of the income tax scale has created distortions and high compliance costs.

"The report is right to argue that tax policy should be focused on economic growth. As it says, New Zealand needs to "stand out from the crowd" by having a low tax regime which makes the country attractive to internationally mobile people and capital.

"Tax policy should not be focused on redistribution – government spending programmes handle that task better. The case for a progressive tax scale on equity grounds is weak and the scope for redistribution through the tax system is limited in today's open international environment. The government has rightly emphasised the need for a bigger national cake.

"Tax policy has to start with government spending. New Zealand is highly unlikely to achieve sustained growth rates of 4 percent or more unless total government spending is reduced below its present level of around 40 percent of gross domestic product. At that level New Zealand is a highly taxed country.

"At the same time New Zealand should adopt a lower and flatter income tax structure. The report's recommendations to reduce the top tax rate to 33 percent and cap the total amount of tax payable would be helpful first steps. In submissions to the Review, the Business Roundtable argued that the medium-term goal should be to reduce all personal and business tax rates to 25 percent or below.

"The Review has highlighted the need for reform of the international tax regime which is long overdue. The case for reducing the tax burden on inbound investment is strong since such taxes tend to be passed on and raise the cost of capital to all New Zealand firms.

"It is pleasing that the Review has confirmed its opposition to taxes on financial transactions, the adoption of eco-taxes, special taxes such as excises and specific tax incentives.

"The report should not be allowed to gather dust on the shelf. New Zealand risks losing further ground with companies reacting to global trends in tax rates and skilled people being attracted by more favourable fiscal regimes. The government's rejection of key recommendations is disappointing. There is a need for serious engagement with the Review's findings and tax policy should be a major issue for political parties going into the next election", Mr Kerr concluded.

For further information:

Mr Roger Kerr
Executive Director
New Zealand Business Roundtable
Tel: (04) 499-0790
25 October 2001

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