Govt ‘obsessed’ by new taxes

Press, 22 June 1989, Page 2

Govt ‘obsessed’ by new taxes

By

PATTRICK SMELLIE

in Wellington

The Government had been so busy creating new taxes it had forgotten, about economic growth, the Opposition spokeswoman on finance, Miss Ruth Richardson, said yesterday.

“The obsession with revenue raising needs to be sharply contrasted with the studied indifference to the level of economic activity in New Zealand,” she told a tax seminar in Auckland.

“In its desperation for tax, the Government has been quite reckless to the real costs imposed on the economy by a tax reform programme off the rails.”

Reform had been undertaken in the name of tax neutrality, but now served the purpose of finding more money to fund Government spending.

“It has helped disguise the unwelcome fact that the tax burden has risen almost 20 per cent, in real per-head terms, over the past five years,” Miss Richardson said.

Compliance costs had been shifted from the Government to the private sector at the same time.

“Most significant of all

in assessing the tax burden is the disincentive effect it places on the workforces,” she said. Since the tax system affected the distribution of income, it affected social policy as well. It was not true that a dollar collected and spent by the Government was as good as a dollar used in the private sector.

"Sense cannot be made of tax policy until sense is made of spending patterns and priorities.”

Miss Richardson said there needed to be links between education, welfare, labour market and tax policies to produce a system which did not discourage effort, referring to themes raised by the Associate Minister Finance, Mr Neilson, in an earlier speech. “We must be prepared to target the low-income earner — especially the low-income family — with cash assistance where it is needed.

“At the same time, we should ensure that provision of the unemployment benefit does not send the wrong signals to people about the decision to work or acquire skills.” Mr Neilson said people moving between social welfare benefits and paid employment were taxed more. Incomes rose, but the benefit vanished.

“High implicit rates on some groups can mean they gain proportionally less additional net income from a similar increase in work effort compared with others,” he said. “In this sense, high rates create barriers to self-reliance and self-im-provement.

“We need to look very closely at how we can overcome this problem, because it is not solved easily. But if the effort is not made, we might find that we have created a vicious dependency cycle,” he said.