nz biggest tax reform in 20 years

Editorial: Tax changes must be just first step The Dominion Post Last updated 05:00 01/10/2010 Today, New Zealand begins...

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Editorial: Tax changes must be just first step The Dominion Post Last updated 05:00 01/10/2010 Today, New Zealand begins its biggest tax reform in more than two decades. Though the changes are not as bold as the Tax Working Group advocated, they are a start towards making the economy more competitive, to be helped further when the corporate tax rate dips next April. Today, however, GST rises to 15 per cent and most New Zealanders will get an income tax cut. Interestingly – presumably having taken to heart the admonitions of Finance Minister Bill English – consumers seem to have eschewed a pre-GST-rise spending spree, suggesting they are reducing debt instead. Mr English will be gratified if that is the case; he wants Kiwis to save rather than spend, although, given the sluggishness of the economic recovery, he might not mind some opting to spend part of the extra cash they will find in their wallets. Naysayers have typically urged the Government to abandon both the tax cuts and the GST rise. Labour leader Phil Goff has gone further, rashly promising to remove GST from fresh fruit and vegetables. But before May's Budget, Mr English was able to convince sometimes wobbly Cabinet colleagues that this was an opportunity to make one of Prime Minister John Key's famous "step changes" in terms of the country's tax structure, and he has not deviated from the script. Many people are likely to be pleasantly surprised when they next open their pay packets; although prices will rise because of the lift in GST, the Government expects most people to be better off. They include those who got diddly-squat under the Clark-led governments, because the redistributive Working for Families did not apply to them. Wage and salary earners are not the only ones who will notice a change in their incomes from October 1. Adjustments have also been made to welfare benefits and superannuation to account for higher GST. In recent days, Government MPs have gone walkabout to sell the Budget's tax changes to the populace. They have been greeted with unsurprising scepticism. These days, the wise are wary – and weary – of Greeks bearing gifts, especially suits saying they are politicians. It would be understandable if some ministers, too, had privately wondered of late whether the tax cuts were sensible, given last month's unexpected hits to the economy. Though the Treasury was prepared for the South Canterbury Finance collapse, it could not have anticipated the impact on the Government accounts of the Canterbury earthquake. Usefully, however, despite the added pressure both events have caused, they, taken with the worldwide recession, have given the finance minister more leverage to further limit state spending when supplicants whip out the begging bowl. Having been uncharacteristically bold with this tax package, Mr Key must not expect to stop there. The next Budget must show his willingness to do yet more to restructure an economy hobbled by distance and a public lack of understanding but that still has to be fiercely competitive to provide the services voters expect. Reward might well come at the ballot box.