The Government should rethink the way it spends money instead of introducing a capital gains tax (CGT), Sir Roger Douglas suggests.
The former Labour Party politician, who is best known for his role in the radical economic restructuring of the 1980s known as 'Rogernomics', told Magic Talk the country is heading in the wrong direction.
Let me tell you, we're not in great shape financially.
"I think broadly, it's a joke," he said on Wednesday, when asked about the prospect of a CGT.
The ACT Party founder acknowledged that the Tax Working Group (TWG) wanted to make the tax system fairer by suggesting a CGT be implemented. But Sir Roger said that view is misguided, and slammed the group's chair Sir Michael Cullen.
"You have Cullen saying that he doesn't really hate the rich but hates poverty. He is inferring, of course, that if we have this capital gains tax, somehow it's going to eliminate poverty, or at least help the position."
Sir Roger also criticised another suggestion in the TWG's report, to increase the bottom income tax threshold from $14,000 to $20,000-22,500. He said it wouldn't be enough of a relief to significantly ease poverty, and said it's the wrong approach.
Rather than introducing a new tax, Sir Roger suggested the Government look at how it can use its money more efficiently, instead of funding policies such as fees-free tertiary education and the Provincial Growth Fund.
Get rid of the Shane Jones circus.
The effectiveness of the $3 billion Provincial Growth Fund (PGF) led by Regional Economic Minister Mr Jones has been questioned. Newshub revealed earlier this month it had only created 54 jobs after $26.6 million had been spent.
The Maxim Institute released a report on Tuesday suggesting the Government's "big" thinking with the $3 billion PGF comes with too much risk, and it needs to start making "smart" investments to generate the better outcomes for the regions.
On the fees-free policy, Sir Roger explained: "You could have the children of two lawyers, who are earning half a million [dollars] each, and we're giving [their children] a free year of tertiary education."
The flagship policy, offering one-year free tertiary study to students, came into force in January last year, and is expected to cost the Government $340 million a year, and the increase to student support a further $270 million a year.
"The situation is getting worse," Sir Roger said. "We've got an absolute obsession with redistribution which is negative and pulls people down rather than getting rid of rent-seeking and introducing more competition."
He added: "We've got money being spent on unnecessary items, we've got hand-outs to the rich mates and interest groups, and we've borrowed when there was no need."
In its recommendations to the Government, the TWG has recommended a CGT on all gains and losses on land and improvements, except the family home, including shares and business assets. It would not apply to personal items, like bikes, boats and art.
There is plenty of support for the recommendation, with Green Party co-leader James Shaw saying earlier on Wednesday that the Government was elected to fix the tax system, and that means considering a CGT.
"We have always believed that it makes sense for people who flip properties for a living to pay tax on that income just the same way that you and I who earn a salary or a wage pay tax on that income."
Even New Zealand First leader Winston Peters, who in the past has opposed a CGT, has appeared to soften his view on it, telling Magic Talk on Tuesday: "Fairness is what the New Zealand people should expect from the Government."
The CGT, which was recommended by the TWG last week, would be set at the income earner's top tax rate, likely to be 33 percent for most people.
The Government will give its response to the recommendations in April.