Pay attention: How New Zealand cut spending and taxes

October 19, 2010

A fantastic Reason article looks at how Canada and New Zealand cut government spending.  Since GOPers often cite NZ’s experience, I found that portion of the piece particularly interesting. Over the span of a decade from the mid 1980s on,  the government’s share of GDP  fell to 27 percent from 45 percent. Here is a bit on how they did it, according to former government official Maurice McTigue (but please read the whole thing):

Privatization: From 1986 through the mid-1990s, New Zealand sold off airlines, airports, maritime ports, shipping lines, irrigation projects, radio spectrum, printing offices, insurance companies, banks, securities, mortgages, railways, bus services, hotels, farms, forests, and more.

Rightsizing government agencies: After we eliminated those government functions, the bureaucracies that used to perform them were too large to perform their remaining tasks. So the civil service was reduced by 66 percent. Some agencies remained almost the same size, while others were reduced by 90 percent to 100 percent.

Cutting taxes: At the same time, we reformed the revenue system by eliminating capital gains taxes, inheritance taxes, luxury taxes, and excise duties and by allowing income to be taxed only once. We halved tax rates, eliminated all deductions that were not a cost of earning income, and created a system where one-third of revenue came from consumption taxes and two-thirds came from income taxes. Under the simplified system, about 65 percent of the population no longer had to file tax returns—a major selling point for reform.

Reforming the appropriations process: With the State Sector Act of 1987 and subsequent laws, funding was linked directly to results. Agency heads were now CEOs, chosen for capability. They received fixed-term contracts: five years with a possible three-year extension.

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