Key defends tax cuts

10:22, May 17 2010
Tax changes
BUDGET BOOST: Tax changes including a switch to lower income tax funded by a higher goods and services tax (GST) are expected.

Prime Minister John Key is defending tax cuts to be announced in Thursday's budget that benefit wealthier Kiwis as necessary for economic growth.

The budget would focus on lifting economic growth which would benefit overall welfare and increase opportunities, Mr Key told Breakfast on TVNZ.

Tax changes including a switch to lower income tax funded by a higher goods and services tax (GST) are expected.

The Weekend Herald reported that personal tax rates are likely to fall from 38c, 33c, 21c and 12.5c in the dollar to 33c, 19c and 10c from October. This is in line with what economists have been forecasting.

This would give someone on $50,000 an extra $20 a week in the hand but when the GST rise is included, it reduces to $6.

"There is going to be tax reform in the budget and you will see across the board tax cuts and I stand by the statements I've made earlier that when you compare a potential lift in GST with a cut in personal taxes no one is going to be worse off and the vast bulk of people will be better off,'' Mr Key said.


"If you are talking about can there be tax cuts at the top end, in my view the answer to that has to be yes, the reason for that is you need the people that are paying the top tax rate to stay in your economy. Whether they are your doctors, your entrepreneurs or your scientists _ I mean we can be envious about these things but without those people in our economy all the rest of us will either have less people paying tax or fundamentally less services that they provide.''

The Government is also making changes to the tax system to make it fairer _ for example a clampdown on property investment loopholes is to be included.

However, while some funding had been made, such as for research and development and later today on leaky homes, the Government was increasing new money in the budget far less than previous years.

"We are continuing to take the rough edges off the recession so what you'll see is our debt numbers are falling in terms of our predictions in the past, we are really trying to get on top of debt. When we came into office the argument was that debt would rise to over half of our economy, that's what the Government owes, we've got that down to 36 percent, this budget you will see an improvement again.''

A slightly improved economic outlook was expected to deliver slightly improved deficits from the government December economic and fiscal update.