New Zealand's more relaxed take on deficit

THE New Zealand government has raised its GST rate to 15 per cent and slashed the top tax rate to 33 per cent in an attempt to reduce the flow of skilled New Zealanders to Australia.

Finance Minister Bill English, of the centre-right National coalition, announced the changes yesterday in a budget with a more relaxed attitude than Australia's, raising the deficit and anticipating no return to surplus until 2015-16.

The company tax rate will fall from 30 per cent to 28 per cent, as proposed in Australia. But property investors will lose tax breaks for depreciation and the right to use investment losses to qualify for means-tested benefits.

Mr English said cutting income taxes and raising taxes on consumption and property speculation will "drive the NZ economy forward, moving away from debt and speculation while increasing investment and exports".

His budget acted on most findings of NZ's tax review, but not proposals for a capital gains tax and tougher rules against negative gearing. The budget forecasts steady growth of 3 per cent for the next four years. The deficit would peak at $A7 billion (4.2 per cent of GDP) next year, then slowly shrink away.