Overhaul of tax system possible - English

The budget will be delivered on May 20 but New Zealanders may get a better idea about the Government's plans for the tax system next week, Finance Minister Bill English said yesterday. 

He said his second budget would focus on improving the economy, getting the Government's books back in shape and could also address changes to the tax system.

Mr English said Prime Minister John Key would outline the Government's thinking on tax reform when he opened the parliamentary year on Tuesday.

Mr English and Mr Key have constantly refused to rule in or out options put forward by the Tax Working Group last month.

It recommended a package of changes including a land tax, changes to the treatment of rental properties, increasing GST and lowering tax rates.

Mr English fenced with reporters over a number of those options, but refused to be drawn on preferences.

"There is whole list of propositions there, any one of them can be controversial on their own... (we want) a package that is fair and seen to be fair, that gives people the incentive to get ahead, and to save and invest," Mr English said

"The prime minister will give some indications of direction next week... You do not get too many opportunities to reshape the tax system and right now with the economic challenges we face, tax is a potentially important lever to get our economy focused on earning more than we spend."

Mr Key also said his opening speech to Parliament would be a quite detailed "shopping list of the economic agenda."

Mr English today expressed concern that by the end of the decade the average income would be at the top tax rate.

Asked if the Government could consider setting a new high tax bracket in the plus $100,000 mark, Mr English said he was open to suggestions. "At this stage anything is possible."

Another possibility would be a mix of cutting rates, lifting thresholds they cut in at and introducing a tax-free level of income.

Mr English said the package would have to be politically sustainable.

"But keeping everybody happy is not our main objective. Our main objective is to take the kind of action that is going to be significant enough to get a shift in our economy."

Mr English said National MPs had today taken stock of the state of the economy and while it was clear the country was moving out of recession, there were still major challenges ahead.

"Some sectors will pick up faster than others, some businesses will do better than others, some people are going to be carrying the cost of the recession some time yet as they look for jobs and try to get their incomes up," Mr English said.

The budget would try and create broad-based recovery and "incentives for hard-working Kiwis to get ahead" as well as increasing savings and investment.

"It will also deal with the major challenge of the government deficits, while the economy has picked up a bit faster than we had expected, the Government's books are still in bad shape and it will still be seven or eight years until we have surpluses."

Mr English believed that unemployment was reaching its forecast peak of around 7 per cent, but it was unlikely to drop quickly.