Lower income tax for all again suggested

Press, 7 August 1985, Page 3

Lower income tax for all again suggested

By

MICHAEL HANNAH

in Wellington Further signs that tax rates for all personal incomes will be lowered when the Goods and Services Tax is introduced were given by the Minister of Finance, Mr Douglas, yesterday. In a breakfast speech to the Merchant Bankers’ Association in Wellington, Mr Douglas said the present tax system provided a greater incentive for higher income earners to evade and avoid tax than it did to earn income. At the same time, he pledged greater income tax relief to “the Labour Party’s traditional constituency,” the lower and middle income earners, saying they deserved more. Mr Douglas’s speech gave no hint of what new tax rates the Government intends to announce in its GST-tax package on August 20. But widespread speculation in Wellington suggests top marginal tax rates will be lowered to a single, uniform level — either 45 or 46 per cent — for personal,

corporate, and fringe benefit tax. Mr Douglas told the merchant bankers yesterday that he doubted whether any of his audience were paying the top marginal rate of 66 per cent, even if their remuneration was higher than $38,000. This was because he doubted whether they received their remuneration in a form that was taxable at 66c in the dollar. He agreed that nobody wanted to pay two out of every three dollars they earned to the Government, and so energy was directed at minimising tax liabilities. He suggested that some of New Zealand’s best financial and legal brains spent all their time worrying more about tax than the production of income. “This mentality is encouraged and maintained by high marginal tax rates and it permeates our whole economic system,” he said. Investment patterns, which determined the growth in national income, were distorted, but it was better if good investments

were made with high rates of return. “I believe quite strongly that the high rates of income tax in New Zealand have been a major factor in our poor economic performance over the last 20 years. I believe they have been a major reason for our poor performance in jobs and living standards. That is because our tax system encourages people to invest in the wrong areas,” Mr Douglas said. The tax system encouraged people to invest in low tax areas rather than in areas providing jobs and growth, and this would continue as long as it was more attractive to avoid tax than it was to earn income and pay tax. Mr Douglas said he was not convinced that high rates of tax, like 66 per cent, raised more revenue. Raising the top rate from 66 to 70 per cent would give him just enough revenue to lower the bottom rate of 20 per cent to 19.7 per cent. That was not much of a trade-off, he said.

A wider tax base, such as that provided by GST, would alter the equation, however, Mr Douglas maintained. GST would provide a whole new source of revenue for redistribution, and would allow the Government to go some way towards a system that provided a minimum family income. Those on lower and middle incomes would get “the best deal,” not only because there were more of them but because they deserved most.