Key: radical economic changes unlikely

UPDATED: 10:14am
Published: Mon, 30 Nov 2009 8:05a.m.

Prime Minister John Key says radical changes in a report to be released today are unlikely to be implemented quickly, if at all.

The 2025 Taskforce report into ways New Zealand could increase productivity and close the wage gap with Australia by that date will be released at midday.

Recommendations, already reported in several media, include:

* Replacing the top tax rate of 38 cents in the dollar and business rate of 30 cents in the dollar with a top tax rate of between 20 and 25 percent.

* Limitations on some universal benefits. Those included interest-free student loans and subsidies for early childhood care education.

* The government to reduce operational spending to 29 percent of gross domestic product by 2012-13.

* Use the NZ Superannuation Fund to pay back borrowing and change the age of entitlement.

* Impose congestion charges in cities to pay for roads.

* No capital gains tax.

Mr 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 told Radio New Zealand.

"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."

There may be some things in the report the Government would consider.

"But we are not going to slash $8 billion worth of government expenditure to get the top personal rate down to 20 percent because I just don't think that would be equitable or fair or something we could easily manage."

Mr Key said some ideas might have merit and the tax working group found favour in lower taxes although not on the scale of those recommended in the report.

The taskforce is headed by former National Party leader Don Brash, who was also a Reserve Bank governor.

It was set up as part of a support agreement with the ACT Party which has a key policy plank of a flat tax.

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," he said on Radio New Zealand.

"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."

Finance Minister Bill English was asked on Newstalk ZB what was the point of the report if the Government was rejecting its recommendations before it was even released.

"It's not a complete waste of time, politics is about getting a balance between what's practical and what's going to make progress," he said.

Mr English said the Government did want to close the gap with Australia.

"We've stated often that New Zealand needs to close the gap between New Zealand and Australia. Here is one set of proposals to do that and I am sure it will start some debate," he said.

New Zealand wages are about 30 percent lower than Australia's. Also, New Zealand's productivity has grown at about 1 percent for the last decade, which would need to increase to 3 percent a year to match Australia's rate.

NZPA

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