NEWSLETTER: Key Notes No.40

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09 October 2008
NEWSLETTER: Key Notes No.40

National's Economic Management Plan

On Monday, the New Zealand Treasury delivered its independent Pre-Election Fiscal Update (PREFU). This act of opening the books is required under the Public Finance Act.

The verdict was damning: Under current policies, under the current Minister, under the Labour Party administration, the Government of this country will run its accounts into the red for the next 10 years.

My colleagues and I have said on many occasions that the Labour Government was squandering the opportunity presented by the most favourable international economic conditions we have seen for decades.

We said that wealth consumption was being pursued at the expense of wealth creation.

We said that growth in the public sector was taking place at the expense of the opportunity for the private sector to invest, to expand, and to grow.

We said these missed opportunities would carry a future cost. This week's PREFU laid out that cost.

After a decade of the most favourable global economic conditions in our lifetimes, all New Zealand has to show for it is an ocean of red ink 10 years into the future.

The suddenness and severity of the international downturn has exposed our economy's weaknesses more quickly than anyone would have expected. But those weaknesses have been present for some time and they must be addressed now. This is a loud wake-up call.

Yesterday, against this backdrop, I announced National's Economic Management Plan.

The surest way out of the red ink is for the New Zealand economy to grow faster than is currently projected.

I am very conscious of the worsening international situation, which is evolving on a daily basis.

Together with my colleagues, I have been closely monitoring the build-up in problems in the financial markets over the past several months, and particularly in recent weeks, and the scale of intervention by other governments. Bill English and I received our latest briefing from the Reserve Bank on Sunday.

We are satisfied that its current plans are sufficient at this stage to maintain confidence in the New Zealand financial system over the coming months.

Should it become necessary, however, we are committed to working with the Reserve Bank on further steps to ensure financial stability.

Let me acknowledge the size of the task in front of the next Government.

Turning New Zealand's economy around will not be easy. In the past nine years, economic growth has been fed by easily available credit. Those days are over.

In today's changed world, New Zealand's economic recovery must be built on stronger fundamentals. It must be built on improved productivity and a better environment for investment in jobs and growth.

To ensure this happens, New Zealand needs a government with a strong economic management plan. That is what National will provide.

Our economic management plan will provide much-needed fiscal stimulus while strengthening New Zealand's position in the longer term by boosting economic growth.

National's economic management plan

Our plan has five essential components:

First, National will improve productivity across the public sector by ensuring a strong focus on the provision of frontline services.

For the past nine years, Labour has been indulging in record-beating spend-ups while failing to improve the productivity of the services they've been funding. I'm thinking, for example, of the health system. Billions more have gone in but surgery waiting times are longer.

There has been a huge increase in the number of reports, strategies, and initiatives across the public sector. The amount and cost of policy advice, communications, and administration has ballooned. It has to stop.

Kiwis confronting tougher economic times are scrutinising every dollar. It's time to instil the same kind of discipline across the public service.

Our message to public agencies will be clear: You must focus taxpayers' money on the frontline services that New Zealanders have a right to expect. And you must scrutinise every dollar and make sure it is money well spent.

Secondly, National will stop the massive rise in head office bureaucracy that Labour has encouraged, and we will deal with the regulatory and compliance issues that smother Kiwi businesses.

Within the first 100 days of our first term, National will introduce a bill to streamline and simplify the Resource Management Act.

We will amend the Emissions Trading Scheme to ensure it strikes a better balance between the need to reduce greenhouse gas emissions and the need to grow our economy.

We will undertake a regulatory review programme. This will identify and remove inefficient and superfluous regulation. It will ensure that regulations are used sparingly and effectively, and reviewed more often.

The hours that businesses spend complying with the demands of government come at a cost. That cost is investment that does not take place, jobs that are not created, and income that is not earned.

National will work hard to reduce the demands that government places on businesses so they can focus on getting through this downturn.

If I am elected Prime Minister of this country on November 8, I intend to bring the chief executives of government departments together and give them a clear and simple message: Their purpose in life is to facilitate the development of a more successful, prosperous nation – not to stand in the way of those who seek to create that prosperity.

The same message will go out to the leaders of local and regional government.

The third part of our plan is the programme of ongoing tax reduction which I will detail further on.

If we are elected, one of our first steps will be legislating for this tax package. We will pass these tax changes into law before Christmas.

Fourthly, National will step-up infrastructure investment in vital national assets like roads and an ultra-fast broadband network.

New Zealand businesses and workers need confidence that the government is committed to growth, both today and in the years ahead. We must unblock the bottlenecks in New Zealand's economy if we are to ensure more productive growth in the years ahead.

So, a National-led Government will invest wisely to enhance New Zealand's growth potential.

Finally, we will have an unwavering focus on lifting education standards.

Our economic future depends on a more skilled workforce. Today's school children are that workforce. New Zealand simply cannot afford to tolerate the long tail of underachievement in our schools. I will have more to say about National's education policies in the coming weeks.

National's tax reduction programme

Now let me turn to tax.

The tax package I announced yesterday reflects National's willingness to set longer-term priorities to strengthen the economy and to make choices to achieve them.

The goals of this package are to stimulate the economy while creating the drivers for long-term economic growth.

One of our first priorities is reductions in personal tax.

In the short term, personal tax reductions will provide much-needed flexibility to taxpayers confronted with difficult economic conditions.

In the medium term, our tax package will help make New Zealanders' after-tax wages more competitive. It will improve incentives in our economy and it will drive growth.

In delivering personal tax reductions, I have also been determined to protect the vulnerable from the sharp edge of a recession.

To that end, we have designed our tax package so it does not require any cuts to public services. As I said earlier, our focus in government expenditure will be increasing productivity, reducing bureaucracy, and improving frontline services.

We have included in our package specific measures to cater for lower and middle income New Zealanders.

Highlights of the package

Let me highlight the principal measures in our package before going in to them in more detail.

The highlights are:

• By 1 April 2011 National's tax-cut programme will deliver a worker on the average wage a tax reduction equal to $47 a week, as compared to the taxes New Zealanders have been paying for the past nine years. As I have previously indicated, this $47 total includes the 1 October 2008 tax cuts.
• The bulk of our tax package will be delivered on 1 April next year, when it will deliver an additional $18 a week to someone on the average wage.
• We will create an Independent Earner Rebate for people earning between $24,000 and $50,000 who aren't receiving Working for Families, NZ Super or a benefit. This rebate will be $10 per week in the first year and $15 per week in subsequent years.
• Our tax reductions will result in higher rates of New Zealand Superannuation than under Labour.
• We will retain all Working for Families entitlements.

Details of the plan

I will now turn to National's tax plans in more detail.

Following on from the tax cuts of 1 October 2008, National will be making further tax reductions on 1 April 2009, 1 April 2010 and 1 April 2011.

We will deliver the bulk of our tax cuts five months from now, on 1 April 2009. As of that date National will apply the following new income tax rates and thresholds.

• A tax rate of 12.5% for income up to $14,000.
• 21% for income between $14,000 and $48,000.
• 33% for income between $48,000 and $70,000.
• And 38% for income over $70,000.

On 1 April 2010 we will shift the threshold at which the 33% rate applies out to $50,000 and lower the top rate to 37%

On 1 April 2011 we will lower the 21% rate to 20%.

This programme of tax reduction will provide welcome relief for households who are feeling the pressure of a down-turning economy.

That means that under National's tax plans around 80% of taxpayers will be paying no more than 20c in tax for every additional dollar that they earn.

This will ensure that everyday Kiwis can look forward to earning more and getting ahead under their own steam.

As a result of our changes to the tax structure, most workers with second jobs will pay a secondary tax rate of no more than 20%.

National has taken steps to ensure there is substantial relief for those taxpayers who earn less than $50,000 and who are not getting financial assistance from the government.

Those who earn between $24,000 and $50,000, and who aren't getting a benefit, Working for Families, or NZ Super, will qualify for the new Independent Earner Rebate.

This will start at $10 a week and rise to $15 a week, which they will receive as part of their normal pay cycle.

This rebate rewards those lower and middle income workers who have not received any benefit from large government surpluses over the last few years. It ensures that National's tax cuts are fair across all income levels and that all workers, no matter their family situation or income level, face incentives to work hard and get ahead.

National will drop the top tax rate to 38 cents in the dollar in 2009 and to 37 cents in the dollar in 2010.

The top tax rate applies to many of the skilled workers our communities rely on – including school principals, GPs, police officers, and many teachers. By reducing the top rate we will show these people that they have a real future in New Zealand where their effort and aspiration will be rewarded.

As I said earlier in the week, we have made some changes to our tax package in light of the news dished up in Monday's PREFU. We had planned to move more aggressively to reduce the top personal tax rate over the next three years.

Our longer-term plan for the income tax system is a simple three-tier structure with the highest rate at no more than 33% for income above $50,000. This is what we will work towards as future economic conditions allow.

But we are being realistic about what is affordable in light of the mess Labour will be leaving behind it. We will continue to target a top tax rate of 36 cents and then lower towards 33 cents over time, subject to economic conditions.

I make no apologies for sending a clear message that National values enterprise, hard work, and people getting ahead under their own steam. I think it's time we all moved on from the politics of envy and embraced a tax system which assists us in retaining our skilled workforce in this country.

Funding of the tax package

I would like to now address the question of how we will fund our programme of personal tax reduction.

Several months ago I made it clear that our tax plans would be hermetically sealed from other government spending tracks. That continues to be the case.

Paying for this package will not require additional borrowing. It will not require any cuts to public services.

Instead, National proposes a rebalancing of the tax system.

We have made two clear choices that have given us the headroom to fund our tax-reduction programme and that will make our overall tax policy self-funding.

The cost of National's personal tax cuts will be balanced by:
• Changes to KiwiSaver, and
• Stopping the Research and Development (R&D) tax credit.

Let me deal with each of these in turn.

First, changes to KiwiSaver.

The expanded KiwiSaver scheme Michael Cullen announced in 2007 is not suited to the difficult economic conditions New Zealanders are facing.

National's KiwiSaver policy is designed to strike the right balance between increased investment in savings and the need to support ongoing economic activity in today's environment. We do not believe that Labour has achieved that balance.

Before I outline the changes to KiwiSaver let me first offer this assurance:

New Zealanders who are in KiwiSaver, and who join KiwiSaver in the future, will continue to receive significant contributions from the government and from their employers.

National is proposing three changes to KiwiSaver. These changes will make KiwiSaver fairer, more affordable for current and future members, and more enduring in the long-term.

The three changes National is planning are:

• First, a reduction in the minimum contributions demanded of employees.
At the moment, most KiwiSaver members are required to contribute 4% of their income to KiwiSaver. In return, they receive a contribution from their employer equal to 1% of their income. As an interim measure, Labour has allowed some KiwiSaver members to make a more affordable contribution, of 2%. In return they receive an equal contribution from their employer.

National thinks this 2 +2 arrangement is fair and affordable. We disagree with Labour's plans to ramp-up KiwiSaver over the next three years.

National will make KiwiSaver a 2+2 scheme. Once this is bedded down, however, we will consider offering an alternative 3+3 scheme option, as and when economic conditions permit.

Let me stress that those who want to contribute more than 2% of their wages to KiwiSaver will still have that option. And employers who want to match contributions beyond 2% will still have that option, too.

• Second, National will remove the tax credit that is currently paid to employers whose staff are enrolled in KiwiSaver. This will have no effect on the amount of money that goes into New Zealanders' KiwiSaver accounts.

This subsidy was a transitional tool but it creates a complex money-go-round. It simply doesn't meet National's test for effective, disciplined government spending.

I note that the net effect for employers will be small, once they take into account the lower minimum contribution rate.

• Finally, National will repeal recent legislation which effectively discriminates against some employees who can't afford to join KiwiSaver.
However, we will keep a safeguard in place, by amending the KiwiSaver Act to make it explicit that no employee can have their gross taxable pay reduced as a consequence of joining KiwiSaver.

National believes that these three changes to KiwiSaver will make it a fairer, more affordable and more enduring savings scheme.

Second, we will stop the R&D tax credit.
When we released our Research, Science & Technology policy we noted our concerns with the effectiveness of this credit and we announced our plan to reduce it in size.

It's clear that the tax credit has created a lot of business for tax accountants and tax advisers, but evidence of real increases in R&D is harder to find.

The PREFU has reinforced how important it is that the government be a careful steward of the public purse over the next few years. National will therefore now discontinue the R&D tax credits altogether.

I am confident that businesses will continue to invest in the research and development they need to innovate and grow.

National has a clear sense of priorities. We think personal tax reductions are the priority in the current environment.

Taken together, the removal of the R&D tax credits and the changes to KiwiSaver mean National will not have to borrow or cut public services to fund our personal tax cuts.

We will, in fact, be booking a small saving from the changes we are proposing – $283 million over three years.

So, no matter what smears my opponents may try to spread, you can be confident. This is a prudent and responsible tax package. National will not undertake additional borrowing for tax cuts. We will not cut public services for tax cuts.

The fiscal picture

In putting together our tax package, National has been mindful of recent global events.

Earlier I made my clear determination to see value for money in the state sector. In that respect we have made a firm decision in relation to Labour's plans to inject significant amounts of new funding into the Ministry of Foreign Affairs and Trade.

National will not commit to this increased funding, apart from expenditure which has already been incurred. This will save around $265 million over the next few years, which we will use to reduce the operating deficit. These savings will not be used to fund our programme of tax reduction.

As I said, we will be working diligently to drive further efficiencies in the public system should we become the Government, but we have taken a conservative approach to our fiscal projections and not factored in any additional savings at this point. Our priority will be improving the productivity of existing spending and delivering better frontline services.

Earlier this year I announced our intention to borrow up to an additional $750 million per year for six years to build more infrastructure sooner. National remains committed to an enhanced infrastructure programme because it will strengthen our economy.

However, in recognition of the uncertain economic outlook, we have decided to phase in the increased infrastructure investment more slowly over the next three years. The total investment over the next six years will be $3.7 billion.

This, together with the savings from our rebalancing of the tax package and our cancellation of the Ministry of Foreign Affairs expansion plans, means National is able to project lower operating deficits and an almost identical debt track to that which Labour is projecting.

A brighter economic future

The events that have unfolded in international markets over recent weeks are testing the framework that has served the international finance sector over many decades. The world is not certain about precisely what lies ahead.

On the issues that are vital to the national interest, my colleagues and I have been careful to keep close to the relevant authorities, especially the Reserve Bank, and to signal our readiness to support initiatives that might be required to support the stability of our financial system.

The decline in the fiscal forecasts has made it necessary for us to re-visit our earlier plans, and we have done so responsibly and been straight-up about it.

If volatile world events pose any further challenges over the coming weeks, I will be equally clear in spelling out the nature of that challenge and the way in which any Government led by me would confront it.

When I entered the New Zealand Parliament, and later when I became the Leader of the National Party, I was motivated by an unshakeable confidence in our country's ability to do better.

I have always believed that given the opportunity to choose a path to a more successful, enterprising, and prosperous nation, New Zealanders would sign up to policies that would bring a brighter future.

But with the current world economic situation, the choices have become starker.

The Treasury forecasts released earlier this week paint a bleak picture of the future, for a long way ahead, if we remain on our current course, if we keep our current policies, if we keep our current government.

My colleagues and I are offering a very different way forward. It involves some clear choices. It requires us, as a nation, to be prepared to back ourselves.

That is what the package that National has put forward is all about.

John Key MP

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#1 - Sid McAuley 2008-10-09 10:30 - (Reply)

All Govt Departments and bodies such as NZFS need to be reviewed,they have no appreciation of the primary need for companies to be profitable and not strangled by over zealous inspectors who have a culture of constantly adding rules and regulations which are plain pedantic and don't add to food saftey or workers safety.ACC must be opened to competition.All rules and regulations in every Govt department must be challenged as they choke inovation!

#2 - Liz Alexander said:
2008-10-09 10:37 - (Reply)

Thank you for explaining so clearly and succinctly how National will deal with the mess Labour has generated for us. It is sad that, once again, National (and I sincerely hope they are the next government without having to deal with coalition partners) faces debt and uncertainty in world markets when they win the election next month. Unfortunately my memory tells me that this is a repeat of other situations faced by National in the past when they became the government and Labour had left them with similar disastrous financial problems. But, like then, I am sure the right management of this country by John and his team will bring the situation around. Good luck - we will be backing you.

#3 - Allan MacDonald 2008-10-09 10:42 - (Reply)

Good on you John. Thinking Kiwis know what youa re trying to do and will support you. The Labour and other supporters ie the Gay liberals, sickness beneficiaries, unemployed, new immigrants, and government employees, will back them, but working and contributing productive employess who carry these bludgers on their backs want a better NZ. We want more disclipline in schools, national standards, get rid of the PC rubbish, clean up the DPB and other welfare systems that destroy the traditional family units and encourage single families and idleness, which lead to wayward youths with out focus or respect for themsleves, their communinities or their country. We need our pride back, in ourselves and our country. Dont let public forget about the Lies Clark and Cullen have told, and how they have wasted our money on pointless welfare adn feel good PC schemes that do nothing while dismantling our Armed Forces and politicising our legal system and Police Force. The health System is in disarray. Why aren't they benchmarked nationally and internationally and forced to adopt best practive methods of management? Also why are our books so bad, well look at the foolish NZ Rail / Toll deal. You would not have been hoodwinked by Toll, that was an absolute case of reckless trading, and it cost us big time. When it comes to economic mismangement Cullen gets an A+. However the Kiwi Saver is the right way to go, Aussie's scheme is even better. Hopefully there will be enough smart people around to know you are on the right track. Also get Mr Grosser on the front bench. You need more smart pragmatic people with you, not slippery politicians like some of your colleagues presently sitting near you in the front benches, who will cause yor problems. Cheers and good luck.

#4 - Anonymous 2008-10-09 10:47 - (Reply)

We are a small software developer which has recently been recoginsed by NBR as currently the third most exciting business in the health industry in NZ. All work to date has been done by the partners in their out-of-work time. We, relying on the tax credit, were about ( next week) to launch a major ( for us ) development programme over the next three years, employing one of the partners full-time. The tax credits gave us sufficient confidence to fund the balance from our own resources. Your announcement yesterday puts this investment seriously in doubt.

#4.1 - Sue Lunjevich 2008-10-10 12:04 - (Reply)

Why do you expect hard working New Zealanders to fund your business growth? There are plenty of businesses who manage with tax credits. Back in 1984 the Labour government decided that farmers did not need subsidies and many people went broke or committed suicide. But the good ones survived and carried on without subsidies. Tax credits are a subsidy for your business. Why do you think your business is more deserving than other businesses of tax payer help? If this business is as good as you say it is why not look for a business partner to invest some money in your business? But then you would have to share the profits and the glory - which maybe you don't want to do!! The Labour government is well known for allowing people to become lazy bludgers who put their hand out every time they want something instead of getting off their butt and making it happen for themselves. Time we had a government who encourages independence and initiative.

#5 - Bruce Simpson said:
2008-10-09 10:47 - (Reply)

Sorry John, your axing of the R&D tax concession just lost you my vote. Now is the time that NZ needs to focus on being "first out of the blocks" when the world's economy starts to revive. We can only do that by helping our best and brightest to turn their good ideas into commercially viable businesses. Removing the R&D tax incentives (one of the few things that Labour got right) is a step in the wrong direction. Even those Kiwi entrepreneurs who manage to succeed in spite of this move will likely end up relying on overseas investment in order to grow and that will almost certainly mean they'll be relocated offshore -- just look at NavMan for a great example of how that works. And to say that it has had little effect is rather naive - it hasn't been in effet for long enough for the positive effects to show. Hell, who do I vote for now? It's reached the point where I might as well not even bother visiting the polling booth - all our politicians seem to be lacking the vision and commitment that are the hallmarks of a good government :-(

#6 - Gary Carter 2008-10-09 10:51 - (Reply)

Will a National Government guarantee or insure bank deposits in New Zealand Banks including the Australian owned New Zealand banks, as is being done in USA, UK and Europe and discussed in Australia?

#7 - Philip Bothwell 2008-10-09 10:53 - (Reply)

An excellent start and more evidence that John Key is the deserving 'PM in waiting'. One question though, which so far, has not been addressed is for the last number of years Labour has been taunting the working public of New Zealand with a massive surlplus in the government coffers but steadfastly refusing to hand back some of the money in the form of tax cuts. Now they tell us that the coffers are empty! Either the money didn't exist in the first place and Labour were lying or on the other hand, where has it gone, what have they squandered it on? Surely this is something that John Key should be hanging Helen Clarke out to dry on!

#8 - Joan Norton 2008-10-09 10:58 - (Reply)

Very disappointed to hear the changes to Kiwisaver - I believe it should be left with the Company Contribution increasing each year.

#9 - Maureen Sudlow 2008-10-09 11:28 - (Reply)

Impressed with your fiscal policy. You have the support of all thinking New Zealanders.

#10 - Laurie Bell 2008-10-09 11:33 - (Reply)

I think your speech is on the mark although it won't please everybody.There is always someone who wants something for themselves without thinking about what needs to be done first to get to the position of being able to help in other areas. The two areas of major concern is Health and Law and Order.In this regard I must say that ACT have some very good ideas.Roger Douglas has spoken a lot lately on Leighton Smith and Danny Watsons show expouting Acts policies on both areas.They have some good ideas on utilising the private sector in Health which I think National should look at.I have never been a Roger Douglas fan before when he was with Labour but his latest remarks on these two areas of concern have a lot of sensible merit to consider. This country needs a change in Government and if it doeasn't come there is going to be an exodus of people that this country can't afford to lose,leaving.We can't afford for them to go because they are paying big taxes for those who aren't paying any at all. Any overseas person requiring health support here should have insurance and paying for it just like we have to in the USA. We should be charging a bed Tax on every tourist coming here to enjoy our great country which would fund our Tourist Advertising Campaigns.When you check into any Hotl or Motel you have to show some prove of Identification which then shows the operator where that person comes from and if they are not a NZ resident they pay a Tax.

#11 - Tony Leatherbarrow 2008-10-09 11:49 - (Reply)

John, what you have outlined is great, except for one thing. Why on earth do you intend to persist with an Emissions Trading Scheme when there is no scientifically verifiable evidence that the emission of CO2 or any other so called greenhouse gas has or is likely to have any measurable effect on the climate? Since 1998 there has been no rise in temperatures, and since 2001 global temperatures have fallen, this whilst CO2 levels have been constantly rising! An Emissions Trading Scheme, in whatever form, will come with an enormous cost. A cost this country cannot and will not be able to afford, especially in light of the current worldwide financial uncertainty. Why commit NZ to such enormous expense (and there wll be enormous expense) on the basis of (now proven to be) flawed computer models of the IPCC? Computer models which have, time and time again, been shown to have no relationship to the real world! The only NZ politician who has said anything sensible on this subject is Rodney Hyde!

#12 - Robin Molloy 2008-10-09 12:22 - (Reply)

Ref Keynote 40 I have read your Keynotes covering the direction the National Party intends to take when they govern. It makes sense to me but you have to get the full message across to all NZ'rs thru a media that focus's only on key points, and also past the tired existing system. That will be the key to your sucess or failure. Making the public service focus on the effective use of taxpayers money will be an interesting challenge. 'Opening The Books' is a draconian system that should be terminated, perhaps by a referendum, and a more transperant system that is continuously visible, holding no unpleasant unexpected surprises.

#13 - Grant Dodson 2008-10-09 12:23 - (Reply)

Hi John A couple of comments. 1;Labours now exposed economic mismanagement. Firstly: What a wasted opportunity for NZ over the last 9 years. Where are the quality roads, electricity networks, internet, well funded schools and hospitals? Your policy of delivering front line services from the public service is spot on. Time to make it happen on the ground. Having returned in 2006 from 8 years in Australia I note that the Govt over there has delivered a far superiour outcome in these areas than Labour in NZ over the recent years of high economic growth. I noted that you didnt appear to capitalise on this economic mis-management point in the media. Perhaps I missed it?? Secondly this, combined with financial crisis has obviously lead to comprimises in what you wanted to achieve in both tax cuts and the axing of the R&D tax credit. Are there plans to re introduce R&D incentives in the future, perhaps in a different form, economic conditions permitting. GD

#14 - Grant Wright 2008-10-09 12:41 - (Reply)

A big disappointment that you have fiddled with the kiwisaver. Many like myself joined based on what was on offer only to have you meddle with it. Why could you not come up with a sensible bipartisan agreement to start with so that there is some certainty for all. I shudder to think what other 'great' ideas you are going to come up with!

#15 - Stephen 2008-10-09 13:19 - (Reply)

Hi John, A couple of comments: 1. I am very disappointed with your superannuation policy (Kiwisaver). We all know that National Superannuation will not be enough to live on when people who like me in their thirties now retire. I like many others went from a private superannuation scheme to Kiwisaver because it offered a 4% plus 4% wage contribution instead of a 3% plus 3% contribution and seemed to be safer than my previous scheme, based on the promise by you and that other party that it wouldn't change. I now find that I will be worse off than I was before and can't change back. (My employer is happier paying 2% than 3% but was happier when he had the tax rebates through kiwisaver). 2. You have released your taxation policy and justice policy but when are we going to get the important policies, you know the ones on health and education. What will you do about the long waiting lists, and deteriorating hospital care system. Also what policies do you have to lift the standards of our childrens education. will you be adding incentives to keep children in school and to attend tertiary institutions?

#16 - James Gibson 2008-10-09 13:24 - (Reply)

Having read your proposed changes to the taxation system, I feel that the proposal is really only scratching the surface of a larger underlying problem. Firstly people on low incomes struggle and will continue to struggle in an ever increasing materialistic world. Would it not be more prudent to adopt a tax relief policy where say the first NZ7,500 earned is a tax free allowance, then, apply sensible tax bands. This would have the benefit of placing real relief to those who need it the most. Higher earners also improve their relief accordingly. An added benefit would undoubtably show itself in the number of individuals coming into the tax envelope, who presently probably evade the 19.5% or higher through evasion or claim benefit rather than work. Secondly, we currently pay tax at source on earned income, invest in savings and get taxed on any interests, investment in life insurance and medical insurance, private pension plans etc. At term we are then taxed again at whatever the current tax level is. For many people this is a disincentive. Perhaps an alternative to a lousy system would be to consider personal tax relief on contributions to private medical, and pension plans. The present government has quandered the golden opportunity to invest in the people of New Zealand. Bold moves and incentives for individuals and business's should be priority. Our greatest asset is our people, admitedly only 4.3 million, allow them the opportunity to grow and prosper.

#16.1 - David Ivory 2008-10-09 16:40 - (Reply)

John - I intend to comment along the same lines as James Gibson. It's madness not to prioritise the reduction of the lowest income tax bands first. And as James suggests, National should introduce a tax free allowance for the first $7500 earned. In fact National should go further and increase this tax free allowance every year as the economy grows and as the budget allows. A focus on tax relief at the bottom would benefit everyone without fail. It kills any notion of favouritism to higher income earners and yet benefits them too. Over time this tax free allowance will: - 1. Ensure that lower income earners share in economic growth 2. Reduce reliance on government handouts 3. Incentivise hard work 4. Increase consumer spending which would benefit all businesses 5. Make it more worthwhile to enter the work force for everyone 6. It would greatly assist in stopping the welfare industry from selling the lie that reliance on government is required by low income earners. That alone makes this policy worthwhile. (And worth repeating) Tax free allowance first - cut the top tax brackets later.

#17 - Alister Brown 2008-10-09 14:10 - (Reply)

Unfortunately, just stopping the growth in the size of the bureaucracy will not be enough. NZ business has to take much harder decisions when faced with equivalent pressures in the commercial world, and reductions in headcount is often necessary. Business realises and accepts that this will inevitably require prioritisation of activities, but the reality is that we must cut our cloth to suit. It is unfair on taxpayers for the bureaucracy to be exempt from the same realities.

#17.1 - RJM 2008-10-10 18:22 - (Reply)

Alister, just to add to your comments, if a business makes wrong decisions to often it will go broke, where as government or local body bureaucracy working with other peoples money in a uncompetitive market will up the rates/tax and carry on, often with staff on higher comparative earnings. Bureaucracy in NZ has gone nuts, maybe thats one reason we are broke. You are right in saying stopping its growth will not be enough, it needs a major trim. Ray

#18 - Hans R. Thieme 2008-10-09 14:30 - (Reply)

thank you john for these notes. Much makes sense and i think your voters will support you taking the intended steps. Word of caution, if i may - talk back the tax cuts at this time of world wide economic turmoil and uncertainties in the financial markets, let the reserve bank do the talking. I think there is no choice for rbnz, it has to follow the pack - the sooner the better. Your support for the rbnz to reduce interest rates and thereby easing financial demand on kiwis personally and in business should give you room for delaying any tax cuts at this time. At the end of the day, new zealanders want a responsible government, businesslike and safe of the cullen promisses and small town attitudes. Good luck!!!

#19 - John & Grace Hough 2008-10-09 16:43 - (Reply)

We will be out of the Country on Election day - but with the help of the internet we will certaily be voting - Totally agree with your policies - We hope to return to Prime Minister John Key and a majority led National Government - Best of luck for the 8th !

#20 - Peter Winquist 2008-10-09 18:37 - (Reply)

I support National - and agree with James Gibson above. Ordinary NZealanders struggle to save for their retirement with the National Super eroding in value. A tax-free contribution to medical aid and pensions would go a long way to helping to save for old age... It seems inequitable that some people (politicians and other fortunate people) who receive pension benefits effectively pay a lower rate of tax in accruing those benefits. At least allow people to save on a level playing field... It would be helpful too if National were to issue a statement on their intentions re maintaining National Sup into the future...

#21 - Stanley Trevor Kivell 2008-10-09 20:32 - (Reply)

I notice comments on the removal of R & D which state that the tax credit gave the developer confidence. One's confidance should be strong enough to succeed without reliance on tax credits. The adjustment to Kiwi Saver was sensible given the present financial crisis. A 4% employer contribution could well be the straw that breaks the camels back. Better 2% and a job than the company closing down. Global warming is a con. Get rid of the Emmissions Trading Scheme.

#22 - Nick 2008-10-09 21:38 - (Reply)

Murray McCully did a survey and only 13% of respondents thought that NZ was spending too much on R&D (0.55% of total Budget). So if the R&D tax credit is not as effective as you think it could be what is your alternative? How are you going to encourage R&D? If businesses invest in R&D without incentives why do we still have an economy based on commodities? Now is the time to invest in R&D so when the world economy is recovering NZ has new, better products to meet this new demand.

#23 - Sue Lunjevich 2008-10-09 22:11 - (Reply)

Some of what I mentioned in my email to you is in this tax package such as the lower tax rate for income below $14,000 but why is the independent earner rebate only starting at $24,000? Surely people who earn less than that deserve some sort of rebate as well. NAIT and ETS still need looking at and removing as they will do srious damage to New Zealanders. Thanks, Sue

#24 - Craig Stuart 2008-10-10 00:58 - (Reply)

As a low income earner with a large family I want to say something that is definitely not going to line my pockets but is just and fair and needs to be done. What I propose has not been said and as far as I know is not the policy of other parties (although I'm sure it's been said somewhere It's too sensible to be anything completely new). *Tax rebates work better than Benefits.* Benefits can work as a minimum tax rebate so that lowest income people are not starved but beyond that the benefit should be purely a tax rebate. Lets study productivity to see what happens under the current system compared to what happens in a tax rebate environment: A tradesman with a family decides to do some extra work using his skills. He earns $100 which he is honest enough to declare in his books. First he must pay GST that leaves him $88.88 Then he pays the minimum tax rate of 24% (remember this is an extra job he already earned his normal wage and any non taxed allowance etc). Then he pays 6% ACC. Then he gets his family support reduced by 30% of each additional dollar earned. So he looses 60% of the $88.88 leaving $35.55. I wonder why so many people are doing cash jobs he says. A marginal tax rate of 64.45% is the lowest rate he can get. As he earns more it goes up. Only when he looses the last dollar of family support does his marginal tax rate start declining. Should he take on more extra work if it involves employing someone else to mow his lawns so he can use his skills instead of pushing a lawnmower? If he pays the lawns contractor out of his tax paid income $15 per hour (cheaper than a commercial rate) he needs to earn ($15/.3555) $42.20 per hour to break even. If he pays a contractor $25 an hour to do something to his home that he could do himself he needs to earn $70.32 per hour to pay for it. He very quickly finds himself at home doing things for himself because he can't get enough for his skills to make it worth paying others to do the simplest jobs. Now let's consider the tax rebate option. At a very low wage he gets a guaranteed family support, but being an average man he has developed some skilled trade where he earns a basic living, so now he gets additional family support as a tax rebate. So for his $100 job he pays 12.5% Gst and is left with $88.88. Taxed at 24% with ACC at 6% but then his family support tax rebate means he gets back 24%. So he gets to keep $83.55. Suddenly he can afford to pay someone else to paint his house at $25 per hour because he needs to only earn $29.92 per hour for his extra work to pay for it. Why should he risk his skilled neck tottering on a ladder when he can go and get some extra work using his skill and be better off. That's what New Zealand needs to do to be more productive. Let each person use their own skills and have the marginal tax rates low enough that they can pay others to use their skills. That will boost the working economy. And you know what: it will also reduce the incentive for dishonesty and cash jobs. Those same marginal tax rates are why you have to pay someone so much more to work in a managerial job that has more responsibility or stress. With high marginal tax rates who wants the job at $50000 when you get $35000 for the no stress job and family support rebates and tax mean you only get $5550 extra take home pay(at 50000). You also lose the community services card so the doctors bills for your stress illnesses have to come out of that! If people who don't qualify for family support or other benefits are paying more than their share of the tax burden it is because the people receiving the benefits have no incentive to earn more and pay more of their share. Lets not make another benefit for the non beneficiary let's lower the marginal tax rates and get everyone working smarter!

#25 - Tom Clark 2008-10-10 08:50 - (Reply)

Two items I am convinced will be good for kiwi's long term.1.Kiwi Saver.2. Kiwi Bank. Are these to be kept long term, encouraged to grow and become a proud Kiwi tradition?, or be got rid of when you are in power as previously stated by Bill English. The Kiwi Saver can build to be a great asset as the Aussie fund has become and the Kiwi Bank gives us our own NZ wide Bank instead of overseas owned ones. Thankyou. Tom Clark.

#26 - John Chant 2008-10-10 09:21 - (Reply)

As a superannuitant I am somewhat perplexed as to how National's proposed fiscal changes will affect my wife and myself. There are vague references to improving benefits but I cannot find any specifics. All that I can find is that our tax rate will be raised to 21% from 19-1/2%. Hardly encouraging. I would be obliged if someone could enlighten me as to the hard facts.

#27 - Len Light 2008-10-10 11:46 - (Reply)

First , you need to beat Helen ,and keep her that way. MMP makes it harder to do that . Why not use it instead, by getting us faithful ones to tick the party box for Act . What does it matter if there are extra MPs as long as Labour is not there ? Surely you do not think you can win long term without a party partner. Actually , I really would appreciate an answer. I am sick of seeing National snatch defeat from the jaws of victory .

#28 - Richard Reynolds 2008-10-10 11:49 - (Reply)

Can you please ask Messrs Clark and Cullen to please explain what they have done with all the surpluses for the last 9 years. Where has the Money gone. We have had high taxes and no growth.

#29 - Rob Hood 2008-10-10 22:02 - (Reply)

From Istanbul, Turkey, on my way home to NZL: Dear Mr. Key. What a breath of straightforward fresh air completely free of "politicalspeak" and meaningless muddy jargon. Completely understandable in one reading & refreshing to read again just to make sure the clarity is real and not a figment of my imagination. More strength to your elbow and best wishes for an astonishingly successful election. Sincerely, Rob Hood Browns Bay, North Shore City.

#30 - Sue Lunjevich 2008-10-10 22:09 - (Reply)

I caught a bit of Helen Clark's rant tonight. Must be election year - she has her hair done a bit better than usual. She says that children are important. That must be why she lets rapists out on bail to do it again. And why the dog laws have no teeth. How many more little children have to be viciously mauled before something is done about pit bulls and other breeds that savage people? These dogs must be eradicated. She also mentioned global warming. That's a crock of s... put around by scientists who feared their ride on the gravy train was nearing the end. And Labour believes it!! Wonder if they believe in the tooth fairy and Easter bunny, too? Roll on November 8th. I can't wait till New Zealanders let the Labour party know that they are not wanted!!!

#31 - Rob Hood 2008-10-10 22:34 - (Reply)

From Istanbul on my way home to NZL: Dear Mr. Key, An additional comment to my remarks posted earlier today. Tom Clark's 10 October observation re Kiwi Saver/Kiwi Bank is an extremely logical and commonsense remark. The problem with politics on many occasions is that the answer is under our noses yet is rejected because it is too simple. It is the ingrained nature and habit of the beast of political machinations that only complicated solutions are valid and the byproduct is the attendant swollen bureaucracy. Continue to keep it simple. Our country's future depends on it. Sincerely, Rob Hood Browns Bay, North Shore City.

#32 - Sylvia Gallot 2008-10-11 14:34 - (Reply)

Dear Mr Key I am sure that you have analysed the speech made by Helen Clark on TV on Friday night. You are up against a 'dirty player' and unless you start to fight back, all your policies and common sense speeches will not win you the election. Labour has had nine years of very favourable economic climate to do most of the things that she spoke of as important. The question needs to asked over and over again - Why have they waited until now - a few short weeks before the election? No matter what policies you put in place you will not satisfy everyone and I note that a number of people have grizzled about changes to the Kiwi Saver scheme. Don't permit Helen to get away with saying that, "Key will wreck it". Labour has been on record more than once say that changes will have to be made to the scheme as it is proving to be too expensive. True to form of course they expect business to continue to make considerable contributions. The majority of businesses in NZ are small business and over 80% of them fail in the first 5 years. When are workers going to realise that if the business climate is not healthy and profitable there will be no employers and no jobs. Of course, under Labour there is always a job with the government and it is for that reason that the civil servant work force has increased by 365% since labour went into power. It is the ultimate irony that Helen talks about this election being about trust. Have the public really forgotten the painting done by someone else yet signed by her? Likewise a piece of pottery she signed yet certainly did not throw. Have they forgotten that police officers carried the can for breaking the speed limit to get her to a rugby match while she claimed she was "unaware that they were speeding as she was working"? She tells us she does what she promises to do - RIGHT!. But what percentage of the public gives her the mandate to do what she promises to do. How many of 'her subjects' supported the anti-smacking bill? Helen talks of how important the people are and how much time she spends with them to find their concerns. In actual fact she is out of the country for so much of the years that there is no way she can have regular contact with the people - unless of course it is a photo-shoot opportunity. I commend you on your statesman-like demeanour but unless your perpared to fight fire with fire, it will all be for nought. Sylvia North Shore, Auckland

#33 - John Chant 2008-10-12 14:28 - (Reply)

Sylvia, you are right on the mark with your comments. JK must show a bit of mongrel and grind Helen into the dust to silence her gratuitous and sanctimonious rubbish about "trust". Talk about the pot calling the kettle black. From a personal point of view I am swinging back to supporting FPP as the PR experiment has been a shambles with the Green tail wagging the dog. Over 80% of the electorate are opposed to the madness of the Bradford inspired anti-smacking law. The majority must rule in a democratic system without losing sight of the true aspirations of the minority.

#34 - John Buckley 2008-10-14 20:45 - (Reply)

Dear John Very dissapointing to hear that National are yet again, as in 1975, going to run down the retirement scheme Kiwisaver. Isn't this the third time that National has destroyed a retirement scheme set up by a Labour Govt??? Much has been said about high interest rates but, my 1st mortgage under the last National Govt was 17.5%for my state advances loan. My daughter was paying 24% for her 1st mortgage with an insurance company! I agree with James Gibson and with David Ivory, what they say is true. Those on lower incomes do not appear to feature under any national policies, a removal of tax for the first $7500 would make a real meaningfull reduction that all income earners would benifit from. We should not forget that those on the lowest incomes pay the most GST as a percentage of their income. Any chance of releaf here? I doubt it. Thanks John B

#35 - Eunice Weir 2008-10-24 14:28 - (Reply)

Nowhere can I find any detail on Working For Families and whether this will continue under National in Government. Some young families where the mother is not in work because of caring for a new baby are wondering if National will continue their financial support, and this is having an effect on their choice of what Party to vote for. Some enlightenment please that can be passed on... [Admin: It is National policy that there will be no changes to WfF. See www.scoop.co.nz/stories/PA0807/S00486.htm ]

#36 - Edward 2008-11-21 19:49 - (Reply)

These tax cuts are great for me. . . however my wife earns part time work of 11,000 she gets NOTHING not even the governments hand out. I see this as lining the pockets of the rich at the expense of the lower income. If you are going to do anything . . what about a tax free threshold of say 10,000. This will go more to help the needy, Than the proposed tax cuts will.

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