PM on knife edge finding the cash to pay for changes

OPINION: John Key looked like a man who did not have a care in the world when he poked his head in the doorway of the press gallery.

No-one was fooled.

His big Tuesday speech is a huge risk. Mr Key is calculating that a hike in GST will not do to his leadership what healthcare reform has done to Barack Obama and the emissions trading scheme has done to Kevin Rudd.

On the surface, Mr Key has given himself some wriggle room on GST by insisting it is not yet set in stone. In reality, he has left himself few other options for funding meaningful changes to the tax system. By increasing GST and hitting the property investment sector for some $1.7 billion in taxes, Mr Key expects to give himself around $4b to play with.

Having ruled out options including a capital gains tax and a land tax (political suicide is the 9th floor response), refusing to go back on his promise not to touch sacred cows such as Working for Families (except to tidy up some rorts at the top end) and interest free student loans, there are few kitties left to raid.

By the time he wandered down to the press gallery, Mr Key would have known that the instant reaction to his speech had been less than generous.

Critics were already lambasting him for failing to deliver on the promised economic "step change".

His answer is wait and see.

His speech hints at more sweeping changes in welfare, education and state housing, while clearly signalling a big step-up in mining – another area where Mr Key looks ready to take a risk.

But it may not be till the May Budget that we see for sure just how many risks he is prepared to take.

- © Fairfax NZ News

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caro   #1   09:44 am Feb 10 2010

It will be interesting to see what happens on this one. I for one am not convinced that the tax system is as broken as it is being made out to be. I am however in support of moves to reduce the attractiveness of investment properties though, as they will ease some of the pressure on the housing supply and make it a bit easier for kiwis to own their own homes.

There is an interesting (once you get your head around it!) chart on public address posted by Keith Ng comparing the tax take in NZ with Australia, it's quite surprising as their tax system is more unequal than ours, but also that their bottom 50% are earning a bigger slice of the total pie than ours does.

http://publicaddress.net/onpoint

(the angle of the segments is the proportion of total income earned by each group and the area of each segment shows the tax they contribute)

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