Labour promises tax free zone in 'action plan'

Radical tax changes are at the centre of Labour's "action plan" for New Zealand which is likely to form the foundation of the party's election campaign.

Party leader Phil Goff said today National's tax cuts had benefited only the wealthy and a Labour government would turn that around by making the first $5000 of income tax-free, cracking down on tax avoidance and raising the top rate to a figure still to be decided.

Mr Goff said, in his State of the Nation speech in Auckland today, that families on an average income gained nothing from National's tax cuts because they had been eaten up by the rise in GST and other cost increases, while 700 people earning more than $1 million a year were given more than $1000 a week extra.

"Never has so much been given to so few," he said. "It's time that some of the windfall goes back to middle and low income earners who work hard and deserve a break."

A $5000 tax-free zone is estimated to cost about $1.3 billion a year in lost revenue and Mr Goff said Labour would not borrow to make it up.

Instead, a high-powered taskforce would be appointed to find ways to stop tax avoidance and close loopholes wealthy people used to hide their income.

He said the current top tax rate of 33c was one of the lowest among developed countries and Labour would increase it again.

"We haven't yet set a new top tax rate, nor have we determined the level of income that it will apply to," he said. "But it will only affect incomes comfortably into six figures, the top few percent of earners."

Prime Minister John Key said a Labour government would have to borrow to pay for the tax free zone.

"On our numbers he is short by at least $1.1 billion a year... he is essentially arguing for borrowing an enormous amount that has to be repaid with interest," Mr Key said. "We would almost certainly be downgraded [by international rating agencies] and interest rates would rise."

Mr Key said Mr Goff was making totally irresponsible election promises.

"We live in New Zealand, not fantasy land...there's no fairy with a printing press at the bottom of the garden."

Mr Goff painted a gloomy picture of present-day New Zealand, saying the economy was stagnant, unemployment had increased by 50,000 under National, prices were rising faster than wages and living standards were going backward.

He set out a five point plan for the country's future:

• Tax changes to better support exports;

• Increasing innovation to grow productivity and smart, successful businesses;

• Boosting skills and trade training;

• Increasing savings, stopping asset sales and keeping land in New Zealand hands; and

*•Changing monetary policy to support exports and jobs.

Mr Goff said that without Labour's policies the gap between rich and poor would continue to grow.

"We are seeing two New Zealands developing, with major social and economic consequences for all of us," he said. "I won't make any promises I can't keep... our ideas will be bold, prudent, credible and capable of creating growth in high value, high skill, high tech and high wage jobs."

The Council of Trade Unions (CTU) said Labour's proposals were fair.

"A tax-free band and increased taxation on the highest incomes will begin to reduce the extremes of inequality that have grown in New Zealand over recent years," CTU president Helen Kelly said.