A committee set up to look at ways to revamp New Zealand's tax system is exploring a land tax which could cost the average home owner $214 a year, reports TVNZ website www.tvnz.co.nz.

Sources known to The Dominion Post newspaper are reported as saying that a land tax on the unimproved value of land without buildings of 0.1% may be possible.

Such a tax could raise more than $460 million - enough to fund a cut from 38 cents to 33 cents in the top personal rate, the newspaper is reported to have said.

TVNZ reports that Reserve Bank chairman Arthur Grimes, who co-authored a draft paper that will be used as the basis for the tax group's work, said he did not advocate a land tax, but was interested in exploring its effects as part of the mix being looked at by the committee.

The option is one of many being looked at as the Government looks to optimise the tax system and allow for lower personal tax rates.

Finance Minister Bill English is also reported to have said that straight cuts to income tax were not possible in the current economic climate. The panel, which is also looking at the possibility of raising GST from its current 12.5%, will report by the end of the year.