On 20 September 2018, the Tax Working Group (the Group) updated the public on its progress and thinking with the publication of its interim report, “Future of Tax”.
In a press release, the Chair, Sir Michael Cullen, said that the Group had conducted a wide-ranging review in order to assess the structure, fairness, and balance of the tax system. The Group has also brought a broad conception of wellbeing and living standards to its work — including a consideration of Te Ao Maori concepts and perspectives on the tax system.
From the submissions, there appeared to be five areas of common concern to New Zealanders. These are:
- climate change and environmental degradation
- changes in business, technology, and the nature of work
- demographic change, in particular the aging of the population
- wealth inequality, and the progressivity, fairness, and integrity of the tax system, and
- the treatment of capital, savings (especially retirement savings), and housing in the tax system.
Highlights of interim report
The highlights of the interim report include the following:
- The taxation of capital income: The Group’s work on capital income is not yet complete. The Interim Report sets out two potential options for extending capital income taxation: extending the tax net to include gains on assets that are not already taxed; and taxing deemed returns from certain assets (known as the risk-free rate of return method of taxation). Feedback on these options will inform the recommendations in the Group’s Final Report in February 2019. The Group is not recommending the introduction of wealth taxes or land taxes.
- Environmental and ecological outcomes: The Group sees significant scope for the tax system to sustain and enhance New Zealand’s natural capital. Short-term opportunities include expanding the Waste Disposal Levy, strengthening the Emissions Trading Scheme, and advancing the use of congestion charging.
- Housing affordability: The Group has found that the tax system is not the primary cause of unaffordable housing in New Zealand, but is likely to have exacerbated the house price cycle. The Group’s forthcoming work will include consideration of the housing market impacts on the options for extending capital income taxation.
- GST: The Group is not recommending a reduction in GST, or the introduction of new GST exceptions. Instead, the Group believes that other measures (such as transfers) will be more effective in supporting those on low incomes.
- Business taxation: The Group is not recommending a reduction in the company rate or the introduction of a progressive company tax. The Group is still forming its views on the best ways to reduce compliance costs and enhance productivity.
- The administration of the tax system: The Group has identified a number of opportunities to improve tax collection such as increasing penalties for non-compliance as well as recommending a single Crown debt collection agency to ensure all debtors are treated equally. A taxpayer advocate service is also recommended to assist small businesses in dispute with Inland Revenue.
Sir Michael said that “extending the taxation of capital income will have many benefits. It will improve the fairness and integrity of the tax system; it will improve the sustainability of the revenue base; and it will level the playing field between different types of investments. Yet the options for extending capital income taxation can be complex, resulting in higher compliance and administration costs”. Sir Michael also noted that: “It’s also worth pointing out that any extension of capital income taxation would apply from a future date, and would not have a restrospective element”.
In a press release dated 20 September 2018 encouraging feedback on the interim report released by the Group, Finance Minister, the Hon Grant Robertson, and Revenue Minister, the Hon Stuart Nash, stated that “The Government has always been clear that no changes will be implemented this term and that there are key bottom lines. In particular the family home, increases to income tax and GST, and an inheritance are off limits”. (see https://www.beehive.govt.nz).
Submissions on the interim report are open until 1 November 2018 and more information can be found at https://taxworkinggroup.govt.nz.