Speech to Tauranga National PartyTreasurer
I'd now like to set out my thoughts on an issue that has been the subject of an increasing amount of media and public attention and that all of you will have some views about - tax.
There are two points in the stories you have seen that are true. The Government wants to lower taxes, and this weekend I will be setting out my proposals for the next steps in our tax reduction programme.
This Government has lowered taxes, and will continue to get them down because we believe people have a right to keep as much of their hard-earned money as possible.
We want to see people rewarded for their work.
We want there to be an incentive to work, and as many people in jobs as possible.
We want there to be better returns on education and skills.
And we want families to be better-off. We know that doesn't come from benefits - you can't make people better-off by paying them benefits - but from work.
The Government is also well aware that our businesses are better placed against competition from overseas when costs, including tax, are lower, and we know that lower taxes help economic growth.
This is because individuals and small and large businesses in the private sector drive economic growth and create jobs, not the government. Government can't do those things and shouldn't do those things and too much government, with high taxes, stifles growth.
We need people investing, taking chances, and working hard and knowing it's worth the effort.
Internationally the better performing economies have lower overall tax takes and dynamic private sector businesses.
This mix is understood around the world, and by the modern left-wing in politics. Tony Blair in Britain pledged not to raise taxes and is now lowering them. The Social Democratic party in Germany has already announced tax cuts to help the average earner and make Germany more competitive. Japan's initial response to its slowdown was to cut taxes to stimulate growth, and Australia is moving to reform its tax system and lower corporate rates.
In New Zealand as well, there is now a far greater understanding of the role of tax.
PAYE has meant the collection of most tax is painless. We would have had a different attitude to taxes earlier if people had to write a cheque to the government each week, instead of receiving pay-packets with the tax already out.
At that point it's pretty clear that government money is taxpayer money. Especially when, if government expenditure is averaged out, that weekly cheque from every man woman and child would be around $180.
Even so, this debate has moved a heck of a long way since we first started seriously designing the first of our major tax cuts in 1995.
Since the Budget the feedback I've got from middle New Zealand has been interesting. People have been saying: we know government assistance is being targeted, we understand that, and it's fair. But we don't get any of that. For us to get ahead, we need lower taxes.
The public likes the idea of lower taxes. Having seen their take-home pay improve, they like the idea of keeping more of their money - and they now know that tax cuts don't have to "cost" anything.
In the last six years: * Net public debt has been slashed by more than half * Spending on education and health has gone up by more than 40%. * And we're now leaving $3 billion of taxes and targeted assistance in peoples' pockets.
A dynamic growing economy, jobs, better incomes, less debt, more and better quality health and education spending, and lower taxes are not mutually exclusive. This Government has showed, given good policy, they can all be delivered at once.
This is why we are now working on the design of the next stages of our tax reduction programme.
Until 1996 our top income tax rate cut in at the level of the average wage.
The first stage saw a significant reduction in the middle tax rate - from an effective rate of 28c to 21c in two steps in 1996 and 1998. And the threshold at which this rate applied was pushed out from just under $31,000 to $38,000.
The middle rate was chosen as this was the best way of benefiting the majority of workers. So anyone working and earning more than $9,500 a year - that is anyone in full-time work - now pays less tax.
This has increased the spending power of working families.
From July 1 last year, a single income family with four children under 13 which earns $35,000 will be receiving $118 a week more in the hand - more than $6,000 a year - as a result of tax cuts and family assistance improvements since July 1996.
Obviously, the tax cuts alone have not delivered all of this increase in income. With the tax reduction package aimed at low and middle income working families, a number of other components were introduced to target the gains. Again these were introduced in steps in 1996 and 1997.
Family support was increased by a total of $5 per child a week.
Guaranteed Minimum Family Income rose by $12 a week.
And a new Child Tax Credit was introduced for low income working families, giving many families another $15 for each child a week.
I should also remind you, that we included in the tax reduction programme in 1996 measures to further encourage beneficiaries into the workforce.
The major move was to encourage people receiving benefits to become involved in part-time work and so lift their incomes and move closer to self-reliance. For all main benefits, people are now allowed to earn up to $80 a week before they lose any of their benefit. Further, people receiving Domestic Purposes, Widows or Invalids Benefits can earn $180 a week instead of $80, before their benefit reduces at more than 30 cents in the dollar.
For someone receiving the DPB with two children earning $180 a week from part-time work, the tax package and abatement changes have been worth an extra $62 a week.
These changes had a rapid effect on the number of beneficiaries working. In April 1997 there were 3,500 more people receiving the DPB who had part-time work worth more than $80 a week, than in July 1996.
What became a three year programme from 1996 to 1998 is now leaving over $3 billion in New Zealanders' pockets.
This represented a reduction in government revenue of around 10%. But economic growth, in part stimulated by lower taxes has seen government revenue in 1995/96 of $32.2 billion, after $3 billion worth of tax cuts, increase in 1998/99 to $36.5b.
Obviously, however, we had to be running large surpluses to sustain tax reductions of that scale and our other economic and fiscal priorities at the same time. In 1995 we set down various pre-conditions before we would move on this programme.
With the impact of the Asian Crisis and now two years of drought, and a corresponding reduction in our forecast surpluses, we do not have the capacity for large scale tax reductions at this time.
But with the economy now recovering steadily, and stronger than forecast growth flowing through to higher revenue flows and a stronger fiscal position, we are able to look at continuing, relatively small, affordable tax reductions.
This Government is not about to do anything damaging to the economy, or that raises doubts about our commitment to good fiscal management.
Signals about the government's fiscal management and debt reduction are very important when the current account remains around present levels, and we are also determined to maintain high quality social services.
As I have said before, tax cuts do not have to come at the expense of education or health or police.
Over the next three years we already have $3.6 billion available in total for additional initiatives - that is $600 million in extra spending each year.
In this year's Budget the Government funded around $146 million in tax reductions - the removal of stamp duties, and new Parental Tax Credit - within a similar sized provision.
This demonstrates that through effective management of its expenditure the Government can reduce debt, increase resources to priority social spending and undertake some tax reductions, while remaining within budget.
Future tax cuts will occur alongside: * increasing fiscal surpluses * decreasing debt * and more spending on quality social services
We are not setting any rigid pre-conditions for debt levels as we did in 1995 because net public debt, at under 22% of GDP and falling now presents far less risk than in 1994/95 when it was still at 37.6%.
Our plans are responsible and have been carefully considered.
This includes economic factors. We need economic growth to continue and we will ensure there is no additional risk from the current account, and that inflation and interest rates won't be significantly affected.
We want lower taxes - but we want other things too. We recognise that taxes pay for these communal services - our health and our education and justice systems.
But this government recognises where those taxes come from. Out of the pay-packets of working New Zealand.
People shouldn't be punished by taxation for trying to get ahead through work.
It is that work that builds New Zealand's future.
That's why Labour's proposal to raise taxes is bad news for New Zealanders, for jobs and for economic growth.
At least the public now knows where it stands. Helen Clark has confirmed Labour's natural instinct is to raise taxes. And Jim Anderton will be doing everything in his power to raise them more.
That is the stark difference between the Government and Labour and the Alliance
We believe we should be very careful with what is your money, and take as little as is necessary in the form of taxes.
They want to spend your money for you.
New Zealand does not have the living standards that we aspire to. Lowering income taxes is one way of making progress on that front.
The idea that you can raise taxes and get ahead - that you can tax your way to prosperity - just isn't credible.