Indexation viewed with favour by C.S.U.

Press, 15 July 1985, Page 35

Indexation viewed with favour by C.S.U.

PA Wellington mConsideration of indexation by the Minister of Finance, Mr Douglas, to prevent erosion of the benefit of proposed tax cuts found favour on Wednesday evening with the Combined State Unions.

The C.S.U.’s general secretary, Mr Barry Tucker, told NZPA that wage and salary earners had lost out severely as a result of fiscal drag. “Because of this people, simply through the process of inflation, are hyped into substantially higher tax brackets. The process of indexation would presumably be aimed at eliminating that problem.”

Mr Tucker said that when the Government wanted money it should budget for that money in real terms. “It should not simply retain artificial tax ratess and gather its income through

the operation of fiscal drag from the workers,” Mr Tucker said. Mr Douglas said in an interview yesterday that indexation to prevent erosion of the benefit of proposed tax cuts was being considered. The Government would consider indexing income tax brackets, he said. If the Government was increasing tax, it should be seen to be doing so, “therefore I would favour some form of indexation.”

Fiscal drag had existed for the last 20 years, in particular the last 10. The average wage earner today paid 25c in the dollar compared with 10c 25 years ago.

The introduction of the goods and service tax would not add to the problem, it would lessen it, said Mr Douglas. “If the rate is 10 per cent, people aren’t going to pay

any more GST in 1987 than they did in 1986 unless they have more money to spend. “What people need to be concerned about is whether we index the personal income tax scale. That hasn’t happened over the last 25 years.”

Mr Douglas said he was not certain he would deal with indexation in the September Budget, but it would be addressed by the time GST was introduced in September, 1986. The Opposition’s spokesman on taxation, Mr Michael Cox, labelled Mr

Douglas’s suggestion that taxation scales could be indexed to inflation rates as “a cop-out.” “It locks the current rate of 16.6 per cent into place by telling all New Zealanders that they will be compensated for such high rates of inflation,” Mr Cox said. “It basically encourages people to continue the high inflation spiral, thereby putting our exporters at risk. With inflation almost 17 per cent, the costs being incurred by exporters are ruining their ability to export?