Sir Roger Douglas's alternative Budget

Major cuts in income tax and radical reform of health, education and welfare feature in Sir Roger Douglas’s alternative Budget.

The 75-year-old former finance minister’s speech to graduate students at Auckland University Business School this evening focuses on reducing government expenditure and increasing private provision of services.

Sir Roger proposes making the first $700 per week ($36,400 a year) income tax-free for individual taxpayers with no dependents.

Families with dependent children would have higher tax-free thresholds, depending on how many children they had. A two-parent family with four or more dependents would have the first $2500 per week ($130,000 a year) tax-free.

A flat tax rate of 10c in the dollar would apply for income earned above the respective tax-free levels.

Families earning less than the tax-free income allowed to them would receive a tax credit of 25c in the dollar of any shortfall.

Sir Roger says the policy would ensure families have sufficient income to look after themselves before having to contribute to government revenue.

Meanwhile, GST would increase from 15% to 16.66% and the corporate tax system would switch from taxing profits to taxing assets owned at a rate of 0.8c.

Household assets would get a deduction of $1 million, meaning those worth less than $1 million would pay no tax on them.

Sir Roger says the switch in corporate tax would encourage New Zealanders to use their assets productively and would shift the tax burden from those who use them wisely to those who do not.

Reduction of $5 billion

Income tax reductions would be funded by cutting government spending, including a reduction of $5 billion in health and welfare spending made possible by more people contributing to their own cover.

Further savings would include $2 billion in benefits, $800 million in corporate welfare, $700 million in Working for Families tax credits for high-income families and $1.5 billion in areas such as education and superannuation, Sir Roger says.   

Savings of $1 billion have been identified but have been used as a “buffer” rather than all of this being taken into account.

His healthcare policy would require all New Zealanders to take out catastrophic health cover, with the government paying for all or part of the cost for people on low incomes and beneficiaries.

He would also introduce a voucher-type education system, with families able to send their children to any registered school of their choice.

A standard scholarship would be paid to the school, with an extra 1% to 10% available to families on low incomes and an education surcharge of 20c in the dollar would be paid by families with income above the tax-free threshold.

Sir Roger says New Zealand has two classes of citizens, “not because the government isn’t doing enough for the poor, but because what the government does for the poor denies them choices, destroys the incentives they have to get ahead, and subjects them to political abuse.”

New Zealand has become “a nation rife with bureaucracy, recklessly determined to re-use the ideas that have failed to solve poverty for over 80 years”, Sir Roger says.

“But if we always do what we’ve always done, then we’ll always get what we’ve always got. 

“What 80 years of political control has achieved is a larger welfare budget, more people on welfare and barriers for those at the bottom to actually get ahead.”

nkloeten@nbr.co.nz