Deficit $7B —Mr Dryden

Press, 28 May 1984, Page 1

Deficit $7B —Mr Dryden

PA Auckland The former Tamaki candidate for the New Zealand Party, Mr Gordon Dryden, believes the party’s economic policy could lead either to huge sales taxes or a record budget deficit. He said yesterday that the policy was “based on errors totalling $7 billion.” Of this, $2 billion came from an overestimate of sales tax revenue on the first year, 1985-86. The draft budget provided for a 15 per cent sales tax on all goods except food, education, health and books, which would all be exempt, and tobacco, alcohol and petrol, which would be taxed at their present rates. It was estimated that this would yield $3.4 billion and would reduce the budget deficit to $1215 million. But in a confidential memorandum dated May 21, which he released yesterday, Mr Dryden said the true yield from a 15 per cent tax would result in “an inflationary budget deficit even higher than Sir Robert Muldoon’s worst ever effort.” “Alternatively,” he said, “the party would have to tax everyone 20 per cent on

every dollar they spent, including rents, rates, house purchases and medicine.” Or, if the sales tax remained restricted to the specified items, it would have to be not 15 per cent but 34 per cent, to achieve the stated deficit figure, or 44 per cent to balance the budget completely. The other, $5 billion error came from the draft budget estimate of a $1920 million increase in income tax revenue in the second year, 1986-87, to reach $8320 million. At the party’s 30 per cent tax rate on incomes above $lO,OOO, this would mean a total increase in wages and salaries in the second year of $6 billion. “Even if a miracle happened, and wages did go up that much in a year, then the Government’s own wages bill would rise by about $2 billion. Yet no increase has been budgeted for,” Mr Dryden said. He said a more realistic figure would be an increase not of $6 billion, but of $1 billion. However, the party’s leader, Mr Bob Jones, said Mr Dryden’s claim that the sales tax might need to be

as high as 44 per cent was absurd. He said it was impossible to know what the effect of the party’s economic policy would be on economic growth, and hence on Government revenue. But the pajty “might have another crack at it” after up-to-date figures were published in the Government’s Budget in July. The party’s candidate for Pakuranga, Ms Josephine Grierson, who was a member of the economic policy committee, said the discovery of errors meant that the party would have to alter the timing of its proposals. “The main alteration is likely to be in the timing of tariff cuts, some sales taxes, and probably we will have to delay the income tax cut and save $5OO million in education and health expenditure,” she said. She said a provision in the draft budget of an 18 per cent increase in education spending in the first year was added incorrectly. “we cannot afford to drastically increase spending in the initial years,” she said.