Brash economic recommendations unheeded
By COLIN ESPINER and TRACY WATKINS - The Dominion Post
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Most of the prescription offered by the 2025 task force for catching up with Australia is "too radical" for the government to pick up, says Finance Minister Bill English.
Dr Don Brash's medicine for the New Zealand economy includes slashing government spending by $9 billion a year.
In his just-released report on how New Zealand's average incomes can catch Australia's by 2025, Brash has outlined a radical plan that would see social spending slashed in order to cut tax rates to just 20 percent.
The report proposes either a flat tax rate of 20 percent or 25 percent for wage and salary earners and 12.5 percent for profits, interest and dividends.
It says anyone earning more than $14,000 a year would pay less tax and that would lead to "a surge of enterprise, excitment about the future, and stronger economic growth".
But to pay for the tax cuts and to stimulate the economy, Brash's report proposes cutting government spending to 2005 levels of 29 percent of GDP within three years.
That would see some $9 billion cut from core government operating spending. Proposals for achieving this include:
* "Ambitious" welfare reform including cutting beneficiary numbers, raising age of super eligibility, fewer universal subsidies
* Scrapping Kiwisaver subsidies and axing the Cullen super fund and using the cash to repay debt
* End cheap doctors' visits and scrap prescription subsidies for middle class
* Cut funding for early childhood education
* Scrap interest-free student loans
* Abolish youth minimum wage and cut adult minimum wage
Brash's report also recommends changing labour laws to make it eaiser to sack workers, extend probationary period for new workers from 90 days to a year, and making high income earners subject to contract law rather than employment law.
At the press conference Brash said that unless tax rates and government spending were cut, the Government's goal of catching Australia "cannot be achieved".
He said if the Government ignored the recommendations "there may be some other cunning plan but I'm not aware of it".
Brash denied he was suggesting slashing spending, saying a $9 billion cut was only taking spending back to 2005 levels.
"Some are saying this is Roger Douglas. It's actually more Michael Cullen."
He urged the Government and the public to consider the recommendations rather than dismissing them as too radical.
"It would be a great shame if, instead of a period of conversation and reflection on the whole report and the issues it raises, particular interests launched instead into immediate commendation or condemnation of specific line items."
Prime Minister John Key said during the 1980s and 1990s New Zealand underwent radical economic reform while Australia took a more incremental approach. The trans-Tasman neighbour was now in much better shape.
"In that regard I am not convinced that absolutely radical big bang reform is the right way to go," Mr Key said.
"It would certainly have a dramatic effect on New Zealanders and in the short term it would feel very much like we were pulling the rug out from underneath them."
Mr Key said the Government would also keep its promises.
"We campaigned on some core commitments, like not raising the age of super or putting the interest back on student loans, and we would be breaking those commitments if we went and did that so we are not going to."
The taskforce was set up as part of a support agreement with the ACT Party which has a key policy plank of a flat tax and takes its name from the year that New Zealand aimed to catch up with Australia.
Mr English said the government would "pick it's way" through the report to see what recommendations it could implement. But it already had a significant programme underway to boost the economy and the report made recommendations that the government "certainly won't accept". That would require it to break election promises and it was not going to do that.
"The report is too radical for the government to pick up and just push it through."
He did not accept Dr Brash's insistence, meanwhile, that New Zealand could not catch Australia economically without implementing the proposals.
"There's always more than one way of achieving economic growth."
Dr Brash said cutting back government spending levels to those of five years ago would fund the supposed tax cut programme.
Labour leader Phil Goff questioned the motivation behind the taskforce.
"It makes you wonder why you would set up a committee led by Don Brash who has come up with an entirely predictable and discredited agenda," Mr Goff said.
"Why would you do that other than maybe to frighten the hell out of people, put up a straw man and then say 'look we're only going to go part way toward that agenda' and everybody breaths a sigh of relief because the slashing that occurs isn't quite as extreme as the Brash proposal."
- with TRACY WATKINS, and NZPA
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Richard#15 People are moving off shore for higher wages, how exactly is anything that Brash Recommended going to change that? Do you think that any tax cuts employers get will be passed onto their employees??The capitalist fairytale of let the market decide doesn’t work, its to susceptible to greed, If you really want the standard of living here to increase then wages across the board must rise,and the cost of living must be regulated . Then cutting social spending can be looked at, until then it wont achieve anything but hardship which equals an unpleasant society which equals more skilled people leaving.
Christopher #13 and Bep #14 the reason we are wanting to raise our standards is because we are losing so many skilled NZers to Australia (and other countries). You can either stick your head in the sand like you are obviously keen to do or we can make some hard decisions as a country and try to keep our talented people. I agree that some of the recommendations won't work but to dismiss it outright is a stupid thing to do.
I wonder whether this government has the stones to make these tough decisions. At the moment it just seems like they are to scared to do anything in case they get voted out. It's too late for a stready as she goes approach. We need to make some significant changes now! All these things like interest free student loans (which I seriously doubt stop alot of young people from leaving anyway - would love to see some stats on this), working for families etc is just not sustainable. The sooner we re-think these piolicies the better. This reckless spending will kill NZ.
With all these cuts for economic purposes, there will be a ripple effect of increase on other areas, such as increase in homeless, increase in premature deaths, increase in unemployment, financial debts will rise. This will effect the lower to middle class New Zealanders which is most of the entire New Zealand nation.
Money doesn't run this country. People do!! New Zealanders!!!
So, rather than cuts for economic purposes to rise, why not develop indicators that will increase the wealth and wellbeing of all New Zealanders such as, health, standard of living, education, happiness, etc all things that is necessary to the wellbeing of all New Zealanders.
These cuts will effect me and my family. As we are a Middle class family who have employment, renting, and in the future looking at being a home owner. Like others I am sure. However, with these cuts in medical, education and subsidies the future is not looking good.
Do pray the Prime Minister makes a beneficial choice. Beside who said our economy needs to be like Australia? There must be a down fall there in other areas, and no one is talking about it.
and not to focus on economic.
I refuse to believe that anyone who gets paid like Don Brash does Is in ANY position to lower minimum wage, Return Interest Rates to Student Loans, Cut education for children. Is this man high or something?! He's determined to harm the average Kiwi and for what? So our economy can match Australia's? Bout time we face fact, we're a small nation with a fraction of the man power and resources of OZ. We shouldn't try to match them. We should appreciate the beauty of our nation instead of wanting what others have. I'm voting Labour. The idea's that Don Brash are putting forward are DISGUSTING.
The amount of people in the government trough, with many of these perks that are built into the system. Yes! tax these perks. If you are lower income earner with no perks. Tuff s##t. Then why have a system which responds to protect income for a small minority (trough perkers) and all others must display accountability. When you leave employment thats it "final" no more perks. Oh! Leave the student alone. Bring all employment issues 'not' before employment law (trough) Onus of probality what a load of c##p. A state mechanism to protect the trough. Reduce this amount of troughers and get these people out into the real world and start actually doing something for this country, other than passing the parcel, or getting permission to get permission stuff. Why have a report that is in essence protecting the rich. This country by international standards is 'not' rich. There was never any mention by Brash to tax overseas owned companies who extract vast sums away from this economy. Yea Tax these capitalists, bring them into our system and make them pay.
Andrew#10 Couldnt agree more. Sam#1 do you really think that high income earners are the only ones who work hard?? really?? the reason this country needs things like working for famlies is because the price of living keeps going up and low end wages dont. CJH#2,from the posts Ive read in the past on this site it certainly isnt the Left who are selfish
CJH / Megz: You understand that Australia has a 'LESS-flat' system than NZ, right?
http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm
Australia has a tax rate of 40c above $80k, and 45c above 180k AND tax free below $6000. That's quite a lot steeper than us.
I'm a selfish left wing voter *sarcasm* who earns well over $100k, so a flat tax would really help me personally BUT I am prepared to pay 38c at the top end (heck, even 39c) for a country that supports those who need it. My extended family has used government assistance at various times and I think it's great and have no problems paying for them to be on various allowances and benefits.
Don't get me wrong, we could tighten it up a bit, but in principle I like the student allowance, Working for Families, the unemployment benefit (with some limits maybe?), superannuation, KiwiSaver, the sickness benefit and ACC.
CJH: If you want to reward every worker, have a tax-free break at the bottom. A flat tax (of say, 25c) doesn't help anyone earning under about $50k.
Oh, and Sam: every country in the world (someone correct me if I'm wrong) says "the more you earn, the more tax you pay" so I'm not sure what your point is.
I am becoming more and more disillusioned with this goverment. With all this talk of having big ambitions for NZ what have they actually done to fulfil this? Not only are we just treading water (lets face it that is all we are doing) but we now have an expensive ETS that all kiwis are going to pay for. People will be poorer. Maybe these changes aren't the answer but doing nothing is also not the answer. Please National grow some stones and try to raise NZ out of mediocrity.
Funny how he's quite happy to break his election promise to hard working NZers to cut tax, but can't possibly break his promise to those sucking the government dry with their "entitlements".
And what's "equitable" or "fair" about taxing some people more than twice the rate others pay, and then vilifying them for being successful?
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I ponder, what kind of effect do you think cutting funding for early education will have on our percentage of skilled workers? Do you believe people will stay to study and work in NZ if interest rates are returned to student loans? Brash's ideas do nothing to help these problems, instead the support the contrary. We should be investing MORE in the education of our children. If you want increase our funds, I suggest we listen to the recommendations of the people, such as removing certain financial privileges for MP's and cutting parliament from 120 members to 90 members. It seems that MP's are creating a drag on our economy and they refuse to take responsibility for this. Never forget, MP's are public servants, they work for us, we pay them. Its about time THEY realize this.