Tax Reform Lessons From New Zealand
July 5, 2005
[T]ax reform in New Zealand would provide a good model for the United States to follow… At the beginning of the 1980s, [New Zealand] had a system of high rates and lots of loopholes. This… led to economic stagnation, high unemployment and fiscal disarray.
The 1980s Lange-Douglas Labour Government adopted a Reaganesque formula for tax reform… The top personal income tax rate was reduced from 66 per cent to 33 per cent. The tax base was extended and most loopholes removed… The corporate tax rate was also lowered from 45 per cent to 33 per cent.
The alignment of the corporate and the top rate of personal tax, along with the integration of dividend income through the imputation system, produced a system with no double taxation of corporate income…
The results of economic liberalisation were striking. Along with strong economic growth, unemployment dropped and Budget deficits turned into surpluses.