Some macroeconomic implications of a productivity tax/subsidy in New Zealand agriculture

Abstract

There is a general recognition of the need for increased agricultural production in New Zealand because since 1970 agricultural production has shown a growth rate of precisely zero. The present input subsidies like the fertilizer subsidy has failed to increase farm production. Introduction of a system of productivity tax and subsidy in agriculture in place of the present income tax may be suggested as one way to raise production and stabilise income in agriculture. The purpose of the study is to examine the potential and the financial implications of this policy and also the general and specific benefits which could accrue under the approach in terms of expansion in agricultural output and farm income etc. As a background necessary for an appreciation of the financial implications of productivity tax/subsidy policy, we have estimated the gross inflow of tax from the farming industry to the New Zealand Treasury over the period 1964-65 to 1976-77 compared to the gross inflow from the non-agriculture sector.