The media made much of the package of Govt assistance for young unemployed people announced at the National’s annual conference. But when it came to Bill English, they tended to be more interested in what taxpayers were doing for him than in what he was doing for taxpayers. Pity. His speech fleshed out the gist of the Govt’s economic programme in general and its tax aims in particular (and a bit more emerged from media questioning afterwards).

Tax Reform Must Come. English reiterated concerns about fundamental economic imbalances - the budget deficit and the current account deficit - and the dire effects of the tradeable sector’s five years of recession. As he and the PM have done in other recent speeches, he spotlighted six key areas for policy focus as the Govt tries to rebalance the economy. But he devoted more time than previously to tax issues. No commitments were made (so as not to pre-empt advice from the expert group charged with examining all aspects of our tax system). But nothing was ruled out, either, including increased GST and a capital gains tax.
Real Change. Radical reform is among the possibilities - the aim is to produce a balanced tax system to reinforce other policies in giving the tradable sector a much-needed boost. Any decisions will have to take the Henry tax review in Aust into account, especially the company rate which potentially could sharpen the Aussies comparative competitive edge. While nothing was promised, English did dampen expectations of individual tax cuts over the next few years because the Govt is short of dosh. Tax revenue is shrinking “so there isn’t scope ahead for us to go around saying we are going to lower your income tax, full stop.”

Currency Still The Issue. The package of measures to help unemployed youth was given much wider media coverage. The HLFS today will show how much unemployment worsened in the June quarter and update us on youth unemployment levels. The portents are bad. Dismaying data this week showed overall employment numbers down around 35,000 from a year ago. Almost 30,000 of the decline was in manufacturing, vital to the tradable sector which must lead us to recovery. The job slump doesn’t surprise analysts who say our exchange rate is a problem. So long as the exchange rate remains export-unfriendly, our economy won’t improve much despite productivity drives, an overhauled tax system and other steps being taken to revitalise our export sector.

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