9 Feb 2010

Key foreshadows GST rise, tax cuts

5:14 pm on 9 February 2010

The Government is considering raising the tax on goods and services to 15%, while at the same time cutting personal income tax rates.

But Prime Minister John Key has ruled out introducing a land tax and a capital gains tax.

In his statement to Parliament on Tuesday afternoon, Mr Key also ruled out imposing a risk-free return method of taxation on residential property investors, which he says would have imposed a heavy tax burden on them.

However, the Government will change the way property is taxed so investors are taxed on the income they gain from their investments.

Mr Key says the present system is tilted in favour of consumption and property investment.

He says a a cut to personal income tax rates and a rise in GST would give people more choice. Their take-home pay would increase and they could choose save it or pay off their mortgage without being taxed. That would encourage savings and investment rather than spending.

But no final decision has yet been made to increase GST.

Mr Key says the Government will go ahead with the rise only if it is certain it will benefit the economy and make most New Zealanders better off.

If GST does go up, benefits, New Zealander Superannuation and Working for Families payments would rise to compensate low-income people for an increase in prices.

Mr Key says no changes would be made to Working for Families apart from cracking down on those families who earn a lot of money but are able to organise their affairs in such a way as to still be eligible for the payments.

In his statement, Mr Key touched on a range of economic and social policies he says the Government will push this year.

Public services

Pressure will continue to be maintained on government departments and agencies - most will get no extra money for several years.

Science and innovation

This year, the Government will invest $40 million in the Primary Growth Partnership as well as investing heavily in research on agricultural greenhouse gas emissions.

Mr Key says the Government will make changes to the way it invests in Crown Research Institutes so more of their research and findings are transferred to private-sector businesses.


The focus this year will be on making progress on the free-trade deal with the United States through the Trans-Pacific Partnership. Trade negotiations with India and South Korea will begin, and efforts will continue to reach an agreement in the Doha round of world trade talks.


Legislation will be introduced this year to amend the Holidays Act. A discussion paper will also be released on improving the personal grievance process and, if necessary, amendments made to employment law.

Natural resources

The Government will look at making changes to management of natural resources so they can be used more productively. That will involve opening up some Crown land to mining. A discussion paper on making proposed changes to Schedule 4 of the Crown Minerals Act, which prohibits mining on specified areas of Crown land, will be released shortly.

Fonterra's capital restructuring proposal may also require the Government to amend the Dairy Industry Restructuring Act 2001.

Access to capital

The Government will focus this year on how to promote investment in capital markets while improving protection for investors. It will in the next week or two release its response to the recommendations of the Capital Market Development Taskforce.

Infrastructure investment

The Government expects to spend $24 billion over the next five years on infrastructure, including roads, the ultra-fast broadband initiative and electrification of the Auckland commuter rail network.

Local government

The new Auckland super-council comes into force from 1 November.

Tourism and the Rugby World Cup

A number of tourism campaigns are being promoted in Australia, the United States and China to attract more tourists. Making sure next year's Rugby World Cup is a success will be a priority for the Government.

Foreign affairs and defence

The first Defence Review and White Paper in 13 years will be completed this year. It will provide a clear analysis of New Zealand's defence needs well beyond 2020.


Ensuring the national standards policy is introduced successfully will be central to the Government's education reforms.

There will also be increased focus on early-childhood education, with the Government making changes to better support children who are missing out. It will also look at giving extra support to schools where children are failing to meet the national standards in literacy and numeracy.

Legislative and funding changes will be made to modernise secondary schools. These will ensure schools have the trades and technology expertise they need and will give them greater flexibility over their timetables and ensure they can use the classrooms, equipment and expertise of other training providers.

In tertiary education the Government will crack down on courses that have a drop-out rate as high as 50%.

Changes could also be made to student support so that those students who refuse to take their studies seriously cannot exploit taxpayers' generosity.

Social services

Mr Key says he continues to hear of families stuck in bureaucratic quagmires that only entrench the cycle of dependency.

The Government is determined to get better results. It will look to reduce the bureaucracy non-governmental organisations face and, alongside this, will continue to develop the Whanau Ora policy.

The Whanau Ora taskforce is due to report soon and the Government intends announce details of the first stage of the programme in the May Budget.

Changes will also be made to the benefits system to ensure people get back to work as soon as possible. The changes will include toughening up criteria and testing for the sickness benefit so that only those who are genuinely too sick to work get the benefit. The work and training expectations of those on the domestic purposes benefit will also increase.

Finally, Mr Key says the Government will appoint a working group of experts to advise on how it can reduce long-term welfare dependency.


An advisory group will be set up to advise the Government on accessibility to state housing. The Residential Tenancies Act is also being amended this year to enable landlords to better manage their properties while ensuring tenants have access to good-quality accommodation.


The Government will continue to crack down on criminal offending. There will be comprehensive changes to the legal aid system, modernisation of court processes and new laws introduced to improve victims' experiences of the trial process.

Liquor licensing laws will be reformed and the Fresh Start Youth Justice Bill will pass into law early this year to give the Youth Court the ability to use a range of new programmes, including military-style camps, to deal with young offenders.

The Government is also proceeding with its plans to open up two prisons to private management.


Legislation will be introduced to support shared services across district health boards and the Ministry of Health. The Government will continue investing in programmes to prevent ill-health with a focus on immunisation, quit-smoking programmes, diabetes and heart disease.

It will also push for better performance from the country's primary health services.

The Treaty of Waitangi and electoral law

Work will continue on replacing the contentious Foreshore and Seabed Act. A group will also be set up to consider constitutional issues, including Maori representation.

Legislation will be introduced to pave the way for a referendum on MMP at next year's general election. Electoral law will be reformed, including work being done so that a single agency administers elections.