30 Nov 2009

Govt should slash spending and taxes - taskforce

11:13 pm on 30 November 2009

The 2025 Taskforce has recommended the Government slash spending and tax rates as part of a policy package to raise living standards to match those in Australia.

It is one of 35 recommendations in a report released by the government-appointed body on Monday afternoon.

The recommendations also include selling state assets and cutting public spending to 29% of GDP by 2012, down from the current 36%.

The taskforce chairperson, Don Brash, says a cut in spending of about $7 billion would enable the Government to cut the company and top personal tax rate to 20%.

He says cutting red tape would also go a long way toward closing the income gap with Australia by 2025.

Prime Minister John Key earlier on Monday quashed the recommendation for a flat tax rate of 20%.

Finance Minister Bill English says the report is too radical to adopt in its entirety, as some of the proposals would involve breaking promises made by the National Party.

"A $7 billion cut in public services would pull out the rug from under many New Zealanders.

"We made a series of commitments during the election about supporting people though the recession and we're not going to break those."

But he says the Government will consider the recommendations, which include introducing more competition to health and education, cutting the minimum wage, liberalising labour laws, scrapping interest-free student loans, cashing up the New Zealand Super Fund to repay debt and raising the age of eligibility for superannuation.

Report a stalking horse - Goff

The Labour Party says the recommendations would give more money to higher income people but make hard working New Zealanders worse off.

Labour says the report was a waste of time and money, and does not contain a single proposal to help families who are struggling now.

Labour leader Phil Goff says the recommendations are radical and come as no surprise from Dr Brash.

"I expect it to be used as a stalking horse. The government can't do what Brash has recommended - they've promised not to do that - but that won't stop them using this as an excuse for at least moving part way down that direction."

NZ Super generous - Brash

Releasing the report on Monday afternoon, Dr Brash said reining in welfare, superannuation and other government spending would enable tax rates to be cut substantially.

"In New Zealand Super we do say that increasing the age of eligibility is something that needs to happen."

Dr Brash says the taskforce also discusses indexing NZ Super to the Consumer Price Index "for a time", rather than to wages.

"The taxpayer funded scheme in New Zealand is now the most generous taxpayer funded scheme in the developed world," he said.

The advisory group recommends scrapping universal healthcare and cutting subsidies for prescription medicines.

Earlier on Monday, Prime Minister John Key rejected many of the report's recommendations before they were made public.

Report a blueprint - Hide

The ACT leader Rodney Hide says the report provides a blueprint for what needs to be done to close the pay gap with Australia.

The establishment of the taskforce was part of ACT's confidence and supply agreement with the National Party.

Mr Hide says bold political leadership is needed, and New Zealand can't catch up with Australia on the policies of the previous government's finance minister, Michael Cullen.

But speaking to Morning Report on Monday, Mr Key said Australia has done much better than New Zealand because it has made economic changes gradually, rather than adopting a "big bang approach" to the economy.

The Prime Minister said there was no way the Government would cut $8 billion in public spending to slash tax rates.

However, taskforce chairperson Don Brash says Mr Key has a real opportunity to close the gap with Australia.

"The Prime Minister has enormous political capital and what he is offering to New Zealanders, if he were to adopt the package as it is, is a package which would lift the incomes of New Zealanders very substantially indeed.

"It's a question of explaining it to the public and the Prime Minister has, I think, extraordinary communication skills."