Tax on benefit, pension curbs ‘to cut spending’

Press, 24 April 1980, Page 1

Tax on benefit, pension curbs ‘to cut spending’

PA Wellington The Economic Monitoring Group has suggested controversial measures for curbing the growth in Government spending, including the taxing of childwelfare payments and stopping, for. a period at least, automatic cost-of-living adjustments for national superannuitants. It also wants the incometax system indexed so that as incomes rise tax rates

will be automatically adjusted for inflation. The group was established by the Planning Council in April,. 1978, after the council -had assumed the economicmonitoring role of the Monetary and Economic Council, which was disbanded in February, 1978. In its third report to the Planning Council the group, led by Dr Donald Brash, says a major cause of New Zealand’s economic ills in recent years has been the excessive size of the Government’s Budget deficit and the manner in which is has been financed.

It said that a significant reduction of this deficit had to be a paramount policy target. It recommended that the deficit be trimmed from the present 6 per cent to 6.5 i>er cent of gross domestic product to about 5 per cent, or about $ll5O million, in the 1980-81 financial year. The following year it should be reduced to 3 per cent of G.D.P. While there was scope for cutting Government spending on health, ■ education, and administration the, problem was that most of the expenditure went into wages and salaries. Any substantial reduction there would mean reducing

the number of public servants or slowing down the rate of their pay increases. None of these solutions could be speedy. “The Monitoring Group is therefore reluctantly forced to conclude -that if we are to reduce the'pressures of high inflation, high interest rates, and low investment by reducing the Government deficit we have no alternative in the short term but to make some significant reductions in the rate of- growth of Government transfer payments and subsidies,” said the group. “All of the ways in which - the Government’s deficit might be reduced are painful to one or more groups in our society. We would be delighted if somebody can show us some painless way in which the goal can be achieved.”

The group said the recent sharp increase in inflation was particularly disturbing. Fiscal and monetary policy had to be directed at reducing the rate of inflation from the 15 to 16 per cent expected for the year to March, 1981, to 13 per cent to 14 per cent; . The group /‘reluctantly” regard 13 per, cent .to 14 per cent as the best infla-

tion figure at which it could realistically ask economic policy to be aimed, :; In every year since 1974 New Zealand’s rate of irifla-. tion had exceeded the average for all the, advanced economies of the West.

- The • group ; the importance of industrial relations and wage negotiations in restraining. inflation. It generally supported relatively free wage bargaining but suggested strict wage controls over unions that could exploit “monopolistic” positions.