Roger Douglas on his proposals

Roger Douglas defends his proposals in the NZ Herald and rejects the “hard right” label.

Now most people know my personal economic views. If I was designing a country from scratch, I would adopt many of Sir Roger’s policies. But that is not the same as putting forward a policy platform which reflects NZ today, yet moves in the right direction.

What is interesting is that Sir Roger mentions his proposals on health and education and taxation, but doesn’t cover the aspect which I suspect most set off glee in the Beehive – namely to cut current spending by $3 to $5 billion. That is what made his proscription somewhat toxic to many. The fact he does not repeat this in his article, suggests to me he knows it.

It is one thing to say we will not increase spending as fast as Labour (which does reduce it as a % of GDP).  But it is quite another to start talking about a 10% reduction in current spending.  NZers will equate that with a huge cut in education, health and other public services.

The proposal to tax exempt the 1st $20K of income is a desirable end goal, to minimise the deadweight cost of tax churning.  But suggesting one can end up there in just a few years is not credible. Peter Costello and now Kevin Rudd are heading towards that goal, but only by having a small reduction every year consistently year after year – not a big bang solution. It will take Australia 15 years of tax cutting to get to that situation.
In fact one thing which I have wondered,  is how much less revenue would occur under the proposed tax policy.  Let’s take them one by one:

1. Reduce top tax rate to 33c = $900 million according to Treasury budget documents
2. No tax on 1st $20K of income. This is a bit harder to work out as you need to go to the tax tables showing income in each band.  I calculate there is $26.2 billion at the 15% rate which is $3.9 billion and $22.6 billion between $9,500 and $20,000 which at 21% is $4.7 billion.  That is a total of $8.7 billion.  However Treasury advise to offset this by 17.31% to allow for extra GST etc so net change is $7.2 billion
3. Adjusting tax brackets to 1999 levels takes a bit of calculation also.  The CPI increased 24% since Dec 1999. But we have already got rid of the bottom rate and the top rate. Hence the only threshold we need to adjust is the 21c/33c threshold at $38,000. It would move to $47,000 with CPI adjustment ad would cost $1.1 billion

So the total annual revenue reduction would be $9.2 billion.