Dave Gee: Life from Right Field

While John Key's National Party has decided that spawning supporters and axing the oft-promised tax cuts makes good political sense, Treasury is calling on the Government to reconsider future tax cuts.

Treasury Secretary Dr John Whitehead says despite the large deficits forecast over the next decade, the New Zealand Government needs to make cuts to both personal and company taxes a "key priority", to revive growth and make the country more competitive.

Dr Whitehead says high personal income taxes are bad for the country's growth and productivity, encouraging skilled workers to move overseas. He also cites evidence that productivity is being restrained by high business tax rates, and warns that New Zealand tax rates shouldn't get too far out of line with other OECD economies.

Australia is currently reviewing its tax system, which could lead to further company tax cuts there, putting additional pressure on New Zealand companies.

Bill English's first budget, delivered last Thursday, forecast Government deficits to increase from nearly $3 billion this year, to $9.6 billion in 2012.

The Government recently established a Tax Working Group to consider the medium-term direction of New Zealand's tax system.

The group brings together experts from the private and academic sectors, along with officials from Treasure and the Inland Revenue. Treasury is believed to favour consumption taxes (like GST), and revisiting a capital gains tax.

* NBR: More tax cuts still needed says Treasury