Tax to be cut 1 p.c. from April in Govt bid to boost purchasing power

Press, 6 December 1979, Page 1

Tax to be cut 1 p.c. from April in Govt bid to boost purchasing power

Parliamentary reporter

Personal income tax will be reduced from April 1, 1980, in a move which the Government expects to arrest the forecast decline in people’s purchasing power.

The reductions will affect all people who earn mere than $4500 a year and are designed to benefit most those earning less than $11,500. The changes will reduce the Government’s incometax take by about $l5O million, or 3.3 per cent, next year. It will increase after-tax personal incomes by an average of 1 per cent. Almost every taxpayer earning between $BB and $212 a week will get an extra $1.58 a week after tax. A taxpayer earning more than $212 a week will get a maximum of $2.83 a week extra. The Government introduced the necessary legislation as the first item of business in Parliament yesterday after a statement by the Minister of Finance (Mr Muldoon). “In my Budget statement this year I said that the Government’s fundamental policy aim was to keep the economy on a steady growth path in order to create a climate which would facilitate further restructuring,” he said. “I indicated that there Could be some weakening in the economy later this year or early in 1980. The latest information the Government has on the economic outlook shows

that economic activity is now flattening out and that in the absence of any policy change this is likely to lead to a weakening in the early part of next year.” Under the Income Tax Amendment Bill (No. 2), the cut-off points of the two lowest plateaux in the income-tax scale had been raised: the upper limit of the 14.5 per cent step from $4500 to $4900 and the upper limit of the 35 per cent step from $ll,OOO to $11,500. Put another way, the bill reduces the tax rate on income between $4500 and $4900 from 35c in the dollar to 14.5 c and reduces the rate on income beween $ll,OOO and $11,500 from 48c in the dollar to 35c. This will give a taxpayer on the “S” code who earns $lOO a week an extra $1.90 in disposable income and one earning $2OO, an extra $l.lO. Introducing the bill, the Deputy Minister of Finance (Mr Templeton) said the changes were intended to alleviate the impact of the progressive tax system in an inflationary period. All taxpayers with taxable incomes of more than $4500 ($86.54 a week) were disadvantaged by this “fiscal drag.” No further adjustment

had been made to the 14.5 per cent tax rate because low-income taxpayers who received an increase in income which did not take then into a new tax bracket generally did not face an increase in their average tax. The Leader of the Opposition (Mr Rowling) said the effects of the move would be "overwhelmed" by escalating inflation before it took effect. The $l5O million reduction in the tax take did not amount to much when it was measured against the increasing impact of inflation. “Certainly as far as those right at the bottom of the heap are concerned it doesn’t amount to anything at all,” said Mr R wling. “Those involved in parttime work, students trying to get sufficient to assist with university studies, are completely excluded by the terms of this bill from any benefit at all.” A professor of economics at the University of Canterbury. Professor R. Manning, said last evening that New Zealand had deep-seated economic acne and that the tax cuts were only cosmetics to improve

appearances a little. New Zealand had a rate of inflation of about 15 per cent, a continuing bal-

ance-of-payments problem, unemployment, low productivity, and little econ- < omic growth. "The tax cuts can be expected to make inflation and the balance of payments worse,” said Professor Manning. “There is no evidence to encourage optimism that the changes will improve employment, productivity, or growth.” The director of the Canterbury Manufacturers’ Association (Mr I. D. Howell) said the tax cuts were a realistic short-term measure but had to be accompanied by cuts in Government spending if they were not to be inflationary. However the cuts would be welcomed by manufacturers as a boost to business activity. Recent surveys had shown that the domestic market was tightening. The tax cuts would stimulate spending and would help to prevent a substantial increase in unemployment. The chairman of the Canterbury Chamber of Commerce (Mr M. R Good) said he wondered whether the tax cuts were big enough because incomes were still rising.

The question was not. whether the cuts would be effective but whether they would come soon enough.