ODT on Key and Tax

The ODT reports:

Personal tax cuts are back on the agenda of Prime Minister John Key and his enthusiasm for the cuts appear to indicate they could be part of National’s 2011 election manifesto.

Speaking to the Otago Daily Times yesterday, Mr Key talked about how a reformed tax system – rewarding people for hard work and risk-taking – could help productivity, along with other measures the Government was considering.

“A lot of work is being undertaken by the tax working group which is due to report by the end of 2010.”

The tax group would make recommendations, some of which would not be palatable to the Government but others would have merit, he said.

What was true was that the group was concerned about holes in the tax system, particularly around the $200 billion of rental properties from which the Crown lost $150 million in revenue.

Mr Key did not support a capital gains tax but he did favour putting some boundaries around investment property.

“On the tax front, the Crown aims to be tax neutral. If we end up plugging some holes then we can recycle the money through tax cuts.”

Sounds promising.

Asked if he could see a time when he could confidently talk about the reintroduction of the tax cuts postponed once the recession hit, Mr Key said he could but the ability to deliver them depended on the size of the fiscal deficits in the future.

However, tax cuts could be part of the overall tax mix.

All of the academic research he had seen out of Treasury pointed to lower personal tax rates as being the strongest impetus to economic growth.

Research from the United States also confirmed that.

And that is key. How we structure the tax system, can have a major effect on economic growth. And only by growing the cake, can we afford superannuation, health care, education etc.

We should ideally have a tax structure that maximises economic growth, and then use the welfare system to deal with inequalities that need addressing. The problem is people see the tax system as the way to address inequality, and that often proves counter-productive.