Tax Alert - September 2017
By Emma Marr
Every three years New Zealand enters a hectic, whirlwind general election campaign, in which our elected representatives and those who aspire to take their place throw themselves on the mercy of the electorate by touring the country, delivering speeches, making promises, shaking hands and kissing babies. On 23 September 2017, it will all come to an end and the country will go to the polls, cast a vote, and then retire to a bar, living room, or cool dark room to await what happens next.
But in the meantime, who is running the country? What happens to Parliament? And what happens to all the Parliamentary business that was going on when all this election business kicked off? For answers to all this and more, read on.
Countdown to an election
Elections must be held in New Zealand every three years – Parliament ends three years after the result of the last election was formally returned, but usually in New Zealand the Parliamentary term is formally bought to a close by the Governor General dissolving Parliament. Once Parliament has dissolved (22 August this year), it’s game on and the election campaign can begin in earnest.
Early votes can be cast from overseas from 6 September, and local advance voting starts from 11 September. You can elect to enrol until 22 September, and polling day is 23 September this year (always on a Saturday), and no election advertising is allowed that day. Election results are released progressively after polling booths close at 7pm on election day, and usually by late evening the outcome of the vote is known. Whether that means we all go to bed knowing who will form the new government is another matter, and if there is no party with a clear majority it may take a few days or weeks for a coalition government to be formed.
Who runs the show in the meantime?
As fun as it is to imagine that there is a vortex of power while the election campaign is going on, in fact the government of the day continues to have executive power, and to make any necessary decisions. By convention major decisions are deferred until a new government is formed, and the public service continues to provide all the normal government-run services.
What about all the Parliamentary business that didn’t get finished?
Whenever Parliament is dissolved there will be bills in the middle of the legislative process, and various other business ongoing. Everything lapses when Parliament is dissolved, meaning that the new government can start with a clean slate. It can, however, choose to re-instate bills at the same stage as they were when Parliament dissolved, rather than starting them all over again.
The current tax bill, the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters Bill) (introduced April 2017) was at the Select Committee state when Parliament dissolved. This bill includes reforms on the disclosure of investment income information, reforms to the PAYE rules, the taxation of employee share schemes and various other reforms (see our April 2017 Tax Alert for more detail). The Finance and Expenditure Select Committee has received written and heard oral submissions on the bill, and is expected to report back late 2017. This will depend on whomever forms the next government deciding to re-instate the bill and commence the process at the point at which it was left before the election. The same goes for all other Parliamentary business underway when Parliament dissolved.
BEPS reforms announced by the current government in August (see our article New Zealand makes BEPS announcements in this edition of Tax Alert) are at an earlier stage, having only been the subject of discussion papers on which the Government had sought submissions. It will be up to the new government whether the proposals announced by the current government will continue unchanged after the election. The current timetable is that draft legislation on those proposals will be introduced in late 2017, with the legislation passing in 2018 and taking effect from income years starting after 1 July 2018. Whether this timetable will be met depends on how quickly this program of work is progressed after the election. A new and different government may simply continue with the planned reforms, or may wish to reconsider them and change the timetable.
Forming a new government
A party with a majority of seats in Parliament will be invited by the Governor General to form a government. If there is no clear majority, parties will seek to form a coalition government, which can take days or weeks. In the meantime, the old government will be a ‘caretaker government’, making only necessary decisions. The Governor General will summon Parliament within six weeks of the election result being formally returned and, by convention, the first business of the new Parliament will generally be to take a vote of confidence in the new government, or rather, for the opposition to move a vote of ‘no confidence’, which the newly formed government must defeat in order to get underway with governing the country.
What tax reform can we expect from the next government?
At the time of writing the tax policies of the main parties may not have all been released, so the below is a summary of what we’re aware of, with the caveat that this election campaign has been full of surprises and there may well be more to come.
- No major changes to policies already announced. These include those announced in the 2017 budget, including tax cuts from 1 April 2018 (for more information refer to the Deloitte analysis of the 2017 budget here).
- No changes to the corporate tax rate.
- Tighter foreign trust rules.
- Possible tightening of rules around tax on buying and selling property, but no details yet.
- BEPS reforms on interest limitation, thin capitalisation, transfer pricing and PE avoidance, and on hybrid mismatch arrangements (refer to our article in this edition of Tax Alert).
- Introduce a diverted profits tax (similar to that introduced in the UK) on multinationals.
- No increase to top individual top tax rate of 33%
- Increasing bright-line test on property sales from two to five years, set up working group to consider further capital gains tax (exempting family home), banning foreign speculators from buying existing New Zealand homes, and ring-fencing losses on rental properties so that losses cannot be offset against other income.
- Regional fuel tax at 10 cents per litre.
- Introduce royalties for bottled water, irrigation schemes and other commercial uses.
- Introduce a $25 levy on international visitors to New Zealand on top of the present border levy of $22 to raise money for the Tourism and Conservation Infrastructure Fund.
- Lower corporate tax rate to 25%.
- Exempt “basic essential food” from GST.
- Give GST paid by tourists to the region in which it was spent.
- Give 25% of royalties and taxes collected for mining, petroleum and water to the provinces from which they came.
- Deductions for professional expenses incurred when starting a new business.
- “Crack down” on black economy and multinationals.
- Implement a capital gains tax on property (exempting the residential home).
- Exempt electric vehicles and public transport passes from FBT.
- Implement a “water levy” of 10 cents per litre on sales or exports of water.
- Reduce bottom tax rate to 9%, and implement top tax rate of 40% on income over $150,000.
- Introduce a tourist tax of $20 by raising border charges for international visitors to raise funds for the Department of Conservation.
September 2017 Tax Alert contents
- New Zealand makes BEPS announcements
- Deloitte 2017 BEPS Global Survey
- Election 2017
- Do your contracts comply with the new Transfer Pricing Guidelines
- Inland Revenue targeting FBT – Are you ready?
- Get your GST matters right before settlement
- Survey shows room for improvement in the way New Zealand taxes business
- A snapshot of recent developments