New Zealand unveiled its biggest tax shakeup for a quarter of a century yesterday, cutting personal and corporate taxes, while raising sales taxes to promote economic growth.
New Zealand Finance Minister Bill English announced the goods and services tax (GST) rate would be lifted from 12.5 percent to 15 percent from October.
To offset the resulting higher prices, personal tax rates would be cut, with the top rate reduced from 38 percent to 33 percent on annual incomes of more than NZ$70,000 (US$47,400).
PHOTO: BLOOMBERG
Most of the changes were telegraphed by the government ahead of yesterday’s budget, but one surprise was the announcement the corporate tax rate would fall from 30 percent to 28 percent from April next year.
“We have changed the tax system to rebalance the economy, to put cash into people’s hands and to encourage them to save more and consume less,” English told parliament. “This is the most significant tax reform package in New Zealand for nearly 25 years.”
Opposition leader Phil Goff said the tax package offered nothing for most people, while further enriching the wealthy, but it does close some loopholes used to minimize tax and a depreciation tax break for property investors will be dropped to encourage investment in productive industries.
New Zealand Prime Minister John Key said the budget would refocus the economy.
“We are well placed to stand out from the crowd and deliver a rebalanced economy that focuses on investment in the right places — investment in productive firms and sustainable job creation,” Key said.
English said economic growth in the latter part of the last decade had been driven by rising household debt and a 50 percent expansion in government spending.
He described New Zealand’s biggest vulnerability as its net external liabilities, which stand at US$168 billion, or about 90 percent of GDP.
A decade would be needed to overcome the effects of the global financial crisis, but English said he was optimistic that the country was recovering.
“New Zealand has successfully navigated the worst global crisis in a generation,” English said.
The country slipped into recession at the beginning of 2008 and only returned to positive growth in the second quarter of last year.
The Treasury forecast growth of 3.2 percent in the year to March next year, reversing a 0.3 percent decline over the year to March this year.
Growth is forecast to remain at about 3 percent for the following three years.
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