Prime Minister John Key today expressed sympathy on behalf of New Zealand to the government and people of Chile following the massive earthquake there.

"I am shocked by the devastation in Chile and would like to convey my sincere condolences to the people of Chile, President Michelle Bachelet and the Chilean Government," says Mr Key.

"More than 200 people have died, but it's clear from media reports that the toll may rise.

"The New Zealand Government is prepared to provide assistance to Chile should this be requested.  The Ministry of Foreign Affairs has spoken to the Chilean Ambassador and passed on the New Zealand Government's condolences.

"New Zealand Civil Defence officials have also been busy monitoring and issuing updates on a tsunami generated by the earthquake.

"While the impact so far appears to be at the lower end of the scale, the Ministry of Civil Defence and Emergency Management is still warning the public to stay away from low-lying areas and keep off the water.

"I have spoken to Civil Defence Minister John Carter, who is pleased with the way the Ministry, emergency services, local authorities, and volunteers have responded across the country.

"The Ministry of Foreign Affairs and the New Zealand Embassy in Santiago are working to account for New Zealanders in Chile.

"This work is being hampered by the break-down in telecommunications as a result of the earthquake.

"So far there are no reports of any New Zealand casualties and all embassy staff have been confirmed as safe.

"Family and friends who have concerns about New Zealanders in the affected area should try to make contact with them in the first instance.

"If they cannot make contact with relatives and have concerns, they should call MFAT on  0800 432 111, or +64 4 439 8401 if they are calling from overseas," says Mr Key.

New Zealand Superannuation payments will immediately rise in two separate ways if the Government decides to increase GST, Prime Minister John Key says.

The Government is considering across the board tax cuts and changes to property taxation as part of a tax package that might also include a rise in GST from 12.5 percent to 15 percent.

In a speech to North Shore Grey Power today, Mr Key outlined how the changes would increase superannuitants' income.

"Superannuitants would get an income tax cut, which would apply both to Superannuation payments and to any other income they receive; for example from interest, dividends or part time work," says Mr Key.

"Second, and in addition to their tax cut, Superannuation payments would be increased up front, by just over 2 percent, to reflect the general rise in prices.

"The increase in Super payments would be immediate from the day GST went up, without waiting for the usual annual inflation adjustment.

"This double-whammy increase means that under an income tax/GST switch, superannuitants would have their incomes lifted quite significantly, and by an amount that exceeds the increase in prices."

In addition to the two immediate increases, across-the-board tax cuts would lift the after-tax average wage - raising the floor for Superannuation payments, which are linked to the average wage.

"Super payments for a married couple cannot drop below 66 percent of the after-tax average wage, so any tax cut that affects the average wage will also affect this floor for Super.

"So when people talk about GST they should bear in mind these different means of compensation, which together are quite substantial."

Mr Key also reiterated the Government's commitment to maintaining Super payments linked to 66 per cent of the after-tax average wage from age 65.

Thank you for inviting me to speak here on the North Shore.

I'd like to start by acknowledging the huge contribution older people make to society in every walk of life: as grandparents, friends, colleagues and as mentors to the younger generations.

Your organisation, Grey Power, has a long history of standing up for the interests of older New Zealanders.

I appreciate the good relationship Grey Power has with the government. A number of ministers meet with Grey Power regularly, and I know that the Minister for Senior Citizens, John Carter, speaks to Grey Power meetings on a frequent basis.

We have had a very busy year-and-a-half as the Government.

As well as getting New Zealand through the global economic and financial crisis in as good a shape as possible, the government was committed to advancing our election policies and keeping our word to the voters who placed their trust in us.

The vast majority of our election polices have already been implemented, or are well on their way.

In Health, for example, we have delivered an additional 11,805 elective operations - a record annual increase. We have funded a 24-hour Plunketline and a 12-month course of Herceptin. We have increased the number of doctors being trained and introduced a new voluntary bonding scheme to encourage health professionals to stay here in New Zealand.

In Law and Order, we have passed new laws to toughen sentences and restrict bail for violent offenders, improve police powers, crack down on gangs and support  victims of crime. We have provided funding for an additional 600 frontline police, and we've given the police new tools to go after criminals, including 720 tasers and the power to DNA-test offenders arrested for imprisonable offences. We've passed legislation to deal with boy racers and we've launched a crackdown on the drug P which is already resulting in increased seizures, lab busts and prosecutions.  And we have legislation before the House to strengthen New Zealand's parole laws.

In Education, we have legislated for and designed National Standards in literacy and numeracy for Year 1-8 children. We have invested in a 21st Century Building Plan to build new schools and improve existing ones. We have increased the options for secondary-age students outside the traditional school system by progressing our Youth Guarantee and Trades in Schools policies.

We have also completed the first stage of Resource Management Act reforms, taken decisive action to sort out the electricity sector and have put red tape under the microscope, undertaking reviews of 14 major pieces of legislation.

We confirmed an unprecedented $7.5 billion of new spending to invest in much-needed infrastructure and unclog New Zealand's economic arteries.

As a government we have done what we were elected to do and we have kept our promises.

I want to take some time today to talk about tax. This is an issue that Grey Power members, and older people more generally, are interested in, and understandably have some concerns about.

Before I get onto that subject, however, I'd like to make a few comments about New Zealand Superannuation.

My cast-iron commitment has always been that the government will maintain payments linked to 66 per cent of the after-tax average wage, and people will continue to be eligible for Superannuation when they reach the age of 65.

Future funding at this level is locked into the government's long-term spending path and is reflected in all of the government's accounts including projections far into the future.

That will continue to be the case no matter what our political opponents say.

Moreover, our opponents appear to have missed a vitally important point.

What enables the government to keep paying Superannuation far into the future, despite an ageing population, is a healthy, growing economy, with a budget in surplus and low government debt.

That is why this government's focus has squarely been on limiting the effects of the global recession, putting in place measures to grow the economy in the future, and getting the government's finances into a sound position.

When we came into office late in 2008, the Treasury was predicting that government debt would spiral out of control in future decades. With sound management, this Government is keeping debt under control.

Only a government which has debt under control will be able to pay for Superannuation, as well as health care, law and order and everything else, in 2025.

So I would be very suspicious, if I were you, of any party that seeks to ramp up government spending by borrowing lots of money.

I now want to talk about tax.

As you may know, the government is currently considering a package of tax measures, where some taxes would go up and others would go down.

Overall, we are not trying to increase taxes, but to get a better mix of taxes.

We have had an expert, independent team called the Tax Working Group looking at the tax system for the last eight months. Their advice is that the mix of taxes in New Zealand is not ideal - in fact, far from it.

So the Government wants to make some changes to the mix of taxes.

That is for a number of reasons.

First, we want to encourage people to save, invest their money in productive businesses, and get a good return for that investment. One particular problem we have in New Zealand is that too much of our investment is in property and that is in part because of our tax rules.

Second, we want to increase the incentives for people to work hard, improve their skills and get ahead here in New Zealand. We don't want young New Zealanders feeling they have to go to Australia, or further abroad, to make a better life for themselves. Some of you will have children or grandchildren living in Sydney or London and you'll know exactly what I mean.

And third, we want a tax system which is widely regarded by New Zealanders as fair and reasonable, and which limits the opportunities some people have to rearrange their affairs to pay less tax. In other words, we want people to pay their fair share of tax, not duck and dive to avoid it.

The Tax Working Group discussed a lot of different options for changing the tax system.

Some of these the Government won't be taking forward.

We are not, for example, going to progress any ideas for a new land tax.

A big reason for that is the effect a land tax would have on older New Zealanders, who might well own the section their house is on, but have no ability to pay an extra tax. That would be unfair.

We are also not going to progress any ideas for a comprehensive capital gains tax.

However, the Government does believe there is a gap in the current tax system around property investments.

Property has been a very popular investment for New Zealanders.

Overall, New Zealanders have around $200 billion invested in rental properties - nearly four times the size of the entire New Zealand share market.

People are obviously getting a financial benefit from investing in rental property but, overall, no tax is actually being paid. In fact, in this sector the government is giving more money back through tax losses than it receives in actual tax payments.

In contrast, those people who have their savings in a term deposit at the bank, are all paying tax on the interest they earn, at up to 38 cents in the dollar.

Over-investment in rental property has also been a factor in driving up house prices, making it really tough for young people to buy their first house.

The Government will therefore be making some changes to the way property is taxed. Those changes will result in increased government revenue and more fairness for taxpayers. We will announce them in the Budget in May.

As part of the overall package of tax measures, the Government is also considering an increase in the rate of GST to 15 percent, together with a reduction in personal income taxes across the board, and up-front increases in benefits, New Zealand Superannuation, and Working for Families payments.

What would be the effect of this tax switch?

The immediate effect would be that prices would rise by just over 2 percent but at the same time people would have more money in their pockets, through income tax cuts and increases in benefits, Super, and Working for Families.

As a government, we are working to ensure the extra money in people's pockets would be greater than the increase in prices. If we can't ensure that happens for the vast bulk of New Zealanders, we won't be increasing GST.

Let me tell you how that compensation would work for Superannuitants.

As part of a tax switch, Superannuitants would get an increase in income through two completely separate channels. I think of that as a "double-whammy" increase.

First, Superannuitants would get an income tax cut, which would apply both to Superannuation payments and to any other income they receive, for example from interest, dividends or part time work. It is important to remember that Super, unlike other forms of income support, is legislated on a gross basis, so a tax cut means that Super payments have to go up.

Second, and in addition to their tax cut, Superannuation payments would be increased up front, by just over 2 percent, to reflect the general rise in prices. What I mean by ‘up front' is that the increase in Super payments would be immediate from the day GST went up, without waiting for the usual annual inflation adjustment.

This double-whammy increase means that under an income tax/GST switch, Superannuitants would have their incomes lifted quite significantly, and by an amount that exceeds the increase in prices.

In addition to this, the floor for Superannuation payments would rise, because across-the-board tax cuts will increase the after-tax average wage. Super payments for a married couple cannot drop below 66 percent of the after-tax average wage, so any tax cut that affects the average wage will also affect this floor for Super.

So, when people talk about GST you should bear in mind these different means of compensation, which together are quite substantial.

Earlier I talked about the immediate effect of a tax switch between GST and income tax. I now want to briefly discuss the longer term effects on the economy.

Switching GST and income tax is not simply a money-go-round, as some commentators have mistakenly assumed.

Reducing personal income taxes, together with an increase in GST, in fact gives people more choices.

Take a young couple whose take-home income goes up as the result of an income tax cut. They can use that increased income to save, or pay off a mortgage, and they are not taxed on it. GST is a tax on spending, not on saving.

In addition, when the couple do save money, and earn interest or dividends on their investments, they will get to keep more in the hand, because of the cut in income taxes. These cuts will make a difference.  For example, a reduction in the second-highest tax rate from 33 percent to 30 percent would represent around a 4.5 percent increase in the return to savers. That sort of increase is an additional reason to favour saving over spending.

Furthermore, because each person's tax rate has gone down, they have a better incentive to work hard, do some more hours, seek a promotion, or up-skill themselves, and do all that here in New Zealand, because they get to keep more of any extra money they earn.

For all these reasons, a tax switch would encourage savings and investment, help increase economic performance, and give young Kiwis a reason to stay here in New Zealand.

There's one more thing I'd like to say about tax, and about GST in particular.

On Sunday Phil Goff starts his two week bus tour of New Zealand to campaign against a rise in GST, and he says he'll drop in on Grey Power along the way.

I hope he does.

Because while he's visiting you could ask him whether he is going to campaign in 2011 on lowering your Super payments, taxing you more on the interest you get from the bank, while also lowering GST. I bet he doesn't.

And you could ask why, when Labour was in government, Phil Goff, Annette King and Trevor Mallard all voted to increase GST to 12.5 percent with no compensation at all for low income workers, beneficiaries, or Superannuitants.

How they can launch an anti-GST campaign after that is beyond me. That's opposition politics I guess, but it's rather hollow and hypocritical.

Can I say in conclusion that the Government is committed to a number of things.

We are committed to lifting the long-term performance of the economy, to making New Zealand a more prosperous country capable of providing well-paid jobs and a better standard of living for everyone.

We are committed to providing the world-class public services needed to give opportunity and security to New Zealanders and their families.

We are committed to making New Zealand a place where your children and grandchildren want to live, work and raise their own families.

We are committed to maintaining Superannuation payments linked to 66 percent of the after-tax average wage, and from age 65 onwards.

We are committed to a better mix of taxes and a tax system where people pay their fair share.

As a result, New Zealand will be a better place to live, work, invest, grow up and retire.

There can be no greater outcome than that.

Prime Minister John Key said today he had accepted with regret the resignation of Housing and Fisheries Minister Phil Heatley from his ministerial portfolios.

"Mr Heatley tendered his resignation to me this morning and I will be advising the Governor-General to accept it," says Mr Key.  "Mr Heatley has also asked that the Auditor-General conduct an audit into his ministerial expenses.

"My officials have been working with the Audit Office since yesterday when this latest issue arose, and the investigation will start this afternoon. The purpose of the audit is to confirm the appropriateness of the expenses claimed by Mr Heatley against Vote Ministerial Services.

"It came to my attention yesterday that the documentation used to support Mr Heatley's expenses claim for $70 in Christchurch last year was incorrect.

"The expenses claim characterised the spending as "Minister and Spouse: dinner".  The actual credit card receipt was notated by him as ‘Minister and Spouse' for ‘Food and Beverage'.  (documents attached)

"The credit card was used for two bottles of wine for his and his wife's table at the National Party Conference.

"I have asked Mr Heatley to explain the inconsistency and he has indicated to me that this was an unintentional error on his part, and he had not sought to mislead Ministerial Services in the characterisation of his claim.

"However, he feels that he has not lived up to the high standards required of a Minister and has resigned his portfolios.

"I expect high standards from my Ministers, but I'm also prepared to accept that everyone is human and from time to time, people make mistakes.

"I have no reason at this stage to believe that Mr Heatley has been dishonest. However, it is important that the Auditor-General investigates this issue to ensure that public money is spent appropriately.

"In addition to the audit of Mr Heatley's expenses, I have asked Ministerial Services to work with the Auditor-General to look at the systems and processes for dealing with ministerial expenses to ensure we are doing everything possible to make sure the rules are clear and are being followed.

"For the time being, I have asked Maurice Williamson and David Carter to act in the Housing and Fisheries portfolios respectively."

Related document:

• HEATLEY Documents (pdf, 71 Kb)