NZ Budget: Approach To Finding New Revenue Sources Limited
February 18th, 2010
The PM’s statement to Parliament said only the Govt would “carefully consider” raising GST. It was a signal it has to get its coalition partners on side, particularly the Maori Party, which says it will fight an increase if it disadvantages low-income groups. But it’s clear Cabinet is set on lifting GST to 15% and also intends to cut top tax rates (though whether to 33c or 30c has yet to be determined). Company tax could be lowered to 25%, though this might depend on the level fixed by the Federal Govt in Aust after it receives the Henry report. Cabinet ruled out a land tax because it did not want a visceral scrap with its farming constituency. Such a tax could also erode the local body tax base.
Of the tax base-broadening options proposed by the Tax Working Group, only the changes to depreciation on property have survived as a potential source of additional revenue, possibly between $750m to $1.1bn. Modeling for the working group found it would be possible to compensate those on lower incomes for a rise in GST by cutting the lowest personal rate (on income to $14,000) from 12.5% to 10.5% and cutting the 21% rate (up to $48,000) to 19%.
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Duncan Cotterill