northland chamber

Government Spending and Taxes

Following the release of the NZ Chamber of Commerce Election Manifesto we received comments on our position regarding Government Expenditure and Tax Policy.

The NZ Chamber of Commerce is recommending that the incoming Government urgently undertake a review of all Government spending with a view to eliminating waste as soon as it takes office

Since 1995 Government spending has almost doubled and is forecast to grow faster than revenue over the next four years.

While recognising the importance of most government spending and the efficiency of taxes as a way of funding public goods, The Chamber believes that both Government spending and taxes have been growing too fast and that New Zealand’s overall tax-take is too high.

As well as the overall quantity of spending, a particular concern is the quality of government spending. There is a growing impression that much of the new spending is non-productive or low quality. Anecdotal evidence suggests government departments are flush with funds that they don’t know how to spend sensibly. A recent example in the media was the badges promoting

Maori education but there are many others.

ANZ National Bank has recently completed a more scientific assessment and concluded that growth in nonproductive spending (excluding benefits) has averaged 8.4% per year since 1997 compared with 5.2% for more productive spending.

More effort needs to be put into eliminating waste in non-productive Government expenditure and reducing overall expenditure growth. We encourage the in-coming government to focus on the quality of its expenditure over the next three years and on raising productivity in the public sector.

New Zealand’s company tax rate was reduced in 2008 for the first time in 20 years (from 33% to 30%). A program of personal tax cuts is to commence later this year. While there has been relief for families in recent years in the form of tax credits, these will be the first tax cuts since the 1990s. The top personal tax rate has not been cut since 1988. This reluctance to reduce taxes has been against a backdrop of decreasing taxes in most of our trade partners’ economies

Lower taxes would achieve a more efficient allocation of resources and make New Zealand a more attractive destination for capital and people. They would improve our international competitiveness and boost investment, employment, productivity and economic growth. It is likely that Australia and other countries will continue to lower their company and personal tax rates over the next few years and so New Zealand must continue to do the same in order to remain competitive.

Tax cuts should be funded by reductions in the growth of further government expenditure and savings from some specific cuts in non-productive bureaucratic spending. We are aware that as the economy slows, significant tax cuts will be less affordable without some significant decisions in this area. Tax cuts must be delivered in a way that does not exacerbate inflationary pressures.

The NZ Chambers recommend that the incoming Government include reducing the top personal tax rates in the next round of tax cuts.

The Northland Chamber of Commerce is the networking, education, advocacy and marketing group for Northland business, and is part of a nationwide network of 30 and a world-wide movement of 21,000 chambers. Subscription to the free fortnightly chamber e-news can be arranged on info@northchamber.co.nz. Enquiries to 09-4384771 or www.northchamber.co.nz, www.kaiparachamber.co.nz and www.farnorthchamber.co.nz

You can have a say on this by going to the Northland Chamber of Commerce Feedback website on www.northchamber.blogspot.com