Economy and Politics: 1967-84

2. Economy and Politics: 1967-84 Consistent low, deteriorating terms of trade • except for dramatic 'spike' 1972-73; chart • pastoral export prices increased well before oil prices • NZ debt profile – intersectoral balances • foreign and central government balances: chart • deficits all around • balance of payments was policy focus NZ politics dominated by one man; Robert 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

3. New Zealand Terms of Trade

4. Foreign and Government Balances

5. Universal Welfare (Fiscal) State 'Public Equity' approach • Reflection of mid-20th century capitalist governance • 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 Income Tax formula 1954-68 • large tax-free allowances, percentage rebates • capable of short-term fine-tuning • not well adapted to inflation first, see 2013 4-step scale example: 1968-69 tax year plus first reform 1969-70

6. 2013 NZ Income Tax Scale

7. NZ Income Tax Structure 1960s

8. late-1960s' examples: 1968-69

9. 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 • new interim scale in 1968 Budget • 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 • inflation worry; innovation: controversial payroll tax 1972 – election year • terms of trade relief; welfare report; 10% tax rebate scales

10. 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 • contrast "refundable tax-credit" as a negative income tax • paid in full to anyone earning at least $690 per year • to replace allowances and percentage rebates • more explicitly equitarian; a specific amount given back • 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

11. Muldoon return: 1976-84 Universal Pension ('Super') & 1977 recession 1978 Budget: new priorities and pressures • expansionary for economic and political reasons • tax cuts required and tax simplification accepted • new emphasis on marginal rather than average rate • Rowling tax credit abolished to fund lower marginal rates • 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 • "temporary" surcharge on three top rates (top up to 66%) 1979-87, income tax scales

12. 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 • surcharge on high incomes retained for 2 further years • top two rates removed from scale in October 1986 • 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

13. 1988/89 NZ Income Tax Scale

14. 2013 NZ Income Tax Scale