Economy and Politics: 1967-84 Consistent low, deteriorating terms of trade – except for dramatic 'spike' 1972-73; chartchart pastoral export prices increased well before oil prices pastoral export prices increased well before oil prices – NZ debt profile – intersectoral balances foreign and central government balances: chart foreign and central government balances: chartchart deficits all around deficits all around balance of payments was policy focus balance of payments was policy focus NZ politics dominated by one man; Robert MuldoonRobert Muldoon: known for his abrasive political style – Minister of Finance 1967-72 inclusive – Opposition Finance spokesman 1973-75 – Opposition leader: mid-1974 to 1975 – Prime Minister and Minister of Finance : 1976-84
Universal Welfare (Fiscal) State 'Public Equity' approach – Reflection of mid-20 th century capitalist governance taxes, including social security tax, required to fund taxes, including social security tax, required to fund – collective goods such as defence, education and health-care – public investment including public-private partnerships – giving something back to everyone in a national community (NZ Inc.?) of stakeholders high levels of taxation became acceptable after two world wars and a 'Great' depression high levels of taxation became acceptable after two world wars and a 'Great' depression Income Tax formula 1954-68 – large tax-free allowances, percentage rebates – capable of short-term fine-tuning – not well adapted to inflation example: 1968-69 tax year plus first reform 1969-70 first, see 2013 4-step scale
Taxation Review and Change Changes in wake of Ross Committee report: – Ross Committee convened 1966; reported 1967 – equitarian values, in line with Muldoon's own core values – looking to some expansion of indirect taxation also recognition of need to facilitate export diversity also recognition of need to facilitate export diversity – new interim scale in 1968 Budget merged Income Tax with Social Security Income Tax merged Income Tax with Social Security Income Tax – new scale in 1970 Budget; addressed top marginal issue introduced 1971, but with a 8-month 10% surcharge introduced 1971, but with a 8-month 10% surcharge inflation worry; innovation: controversial payroll tax inflation worry; innovation: controversial payroll tax 1972 – election year – terms of trade relief; welfare report; 10% tax rebate scales
Labour interregnum: 1973-75 Buoyant 1973: Reformist Budget – Bill Rowling, Minister of Finance (PM from Sept 1974) – explicit new fixed-amount tax "rebate" really a 'non-refundable tax credit' of $125 per year really a 'non-refundable tax credit' of $125 per year – contrast "refundable tax-credit" as a negative income tax paid in full to anyone earning at least $690 per year paid in full to anyone earning at least $690 per year to replace allowances and percentage rebates to replace allowances and percentage rebates – more explicitly equitarian; a specific amount given back required 'plateau' scale; 18% tax on first dollar earned required 'plateau' scale; 18% tax on first dollar earned 1975: inflation and terms of trade collapse – tax credit raised to $155 – bottom rate raised 18% to 20%; top, 50% to 60% 1974-75, 1976-77 income tax scales with tax credit
Muldoon return: 1976-84 Universal Pension ('Super') & 1977 recession 1978 Budget: new priorities and pressures expansionary for economic and political reasons expansionary for economic and political reasons tax cuts required and tax simplification accepted tax cuts required and tax simplification accepted new emphasis on marginal rather than average rate new emphasis on marginal rather than average rate – Rowling tax credit abolished to fund lower marginal rates effective end-of tax-free income zone effective end-of tax-free income zone McCaw Task Force Report 1982 – fiscal drag (bracket-creep) with renewed high inflation – recommendations implemented on cutting personal tax extended second-bottom marginal tax rate extended second-bottom marginal tax rate – "temporary" surcharge on three top rates (top up to 66%) 1979-87, income tax scales
End of Muldoon Era Muldoon out 1984; Rowling out 1982 – Muldoon's approach did not fit the global paradigm shift 1984-90 Labour Government approach – shift from equitarian to neoliberal policy principles included rapid finance and state sector liberalisation included rapid finance and state sector liberalisation – surcharge on high incomes retained for 2 further years – top two rates removed from scale in October 1986 exchanged for a comprehensive 10% GST exchanged for a comprehensive 10% GST – goods and services tax – top rate cut to 33% in 1988, after 1987 financial crisis absence of zero-tax income zone entrenched – Labour Party in Jan 2014 abandoned resurrection policy
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