Tax policies of the coalition government
Tax Alert - November 2017
By Robyn Walker
Traditionally the election period is a quiet period from a tax perspective. A period of brief respite from tax policy proposals, announcements, consultation and new legislation. It is clear that the holiday will soon be over, with the new Labour-NZ First Government being sworn in last week.
Tax featured heavily in the 2017 election campaign and, as such, we are also likely to see tax being a focus for the new government. Not only to make its mark on the tax landscape, but also to ensure that the revenue coming into the Inland Revenue is sufficient to pay for new spending promises.
There will be a number of priorities for the new government, however the 100 day plan specifically includes establishing the Tax Working Group. Other 100 day plan actions such as the introduction of a new families package, changes to student loans and changing minimum wages will also require tax intervention as these changes all touch the social policy systems administered by Inland Revenue. The new Minister of Revenue Stuart Nash will be in for a busy time.
In addition to the 100 day plan, there will be a bunch of “Business as usual” activities that will require proper attention. Inland Revenue is part-way through a major transformation which will require detailed oversight, as well as legislative reform. In addition, the last National-led Government proposed comprehensive changes to address Base Erosion and Profit Shifting (BEPS) concerns, with new rules intended to apply from 1 July 2018. The expected revenue from these measures has already been banked in forecasts and therefore we are unlikely to see any slowdown in these reforms. In order to have legislation enacted in time for a 1 July 2018 start date, we would ordinarily expect legislation to have been introduced into parliament by mid-2017, so it will be imperative for the new government to make its decisions and get legislation into Parliament as soon as possible.
The previous government was also in the process of implementing a number of tax changes, including changing employee share scheme rules and implementing a number of measures needed for Inland Revenue’s Business Transformation project (see our April 2017 Tax Alert for more details on this). The contents of this Tax Bill will need to be evaluated and a decision made as to whether to reinstate and progress the Bill in its current form.
The Labour Party included the following items in its election tax policy which we would expect to see progressed over the next parliamentary term:
- Reverse National's proposed tax cuts and re-invest that money in a fairer package of support for families and in core public services such as health, education, housing and police
- Crack down on housing speculation by extending the bright line test to five years. This taxes the sale of properties other than the family home
- Create a level playing field for families to buy their first home by removing a tax loophole that speculators use to avoid paying tax – as recommended by both the IMF and the Reserve Bank
- Set up a Tax Working Group, to ensure that there is a better and fairer balance between the taxation of income and assets, in particular the capital gain associated with property speculation. The outcomes of this Working Group – if any – will not take effect until the 2021 tax year
- Introduce tax incentives to encourage research and development
- Eliminate Secondary Tax as part of IRD’s Business Transformation Programme
- Take strong action to ensure that multi-national companies pay their fair share of tax, including consulting on the introduction of a Diverted Profits Tax.
Tax Working Group
There is nothing like a good review of the tax system to get tax advisors excited to get out of bed each day, and 2018 seems likely to keep the tax community inundated with plenty of reading material. While we may have to wait another 100 days for the finer details, here is some of what we already know about the Tax Working Group:
- The terms of reference will be to consider possible options for further improvement in the structure, fairness and balance of the tax system.
- The Working Group will have a primary focus on measures that will address the imbalance in taxation on gains from speculation in property and income from other sources.
- The Working Group will consider options that are forward looking, not retrospective.
- Increases in personal income or corporate taxes or GST rates will not be considered, nor will any inheritance taxes or other changes that could apply to the family home.
- The Working Group will be comprised of tax experts, academics, economists and those with knowledge of the impact of the tax system on individuals, communities and businesses. Members will be appointed by Cabinet and will be supported by recommendations by Treasury, MBIE, the Reserve Bank and Inland Revenue.
It is expected that the Working Group will be established before Christmas and convene in the New Year. The Working Group will be working during 2018 with an aim of reporting to the government in early 2019. Further consultation would then occur on recommendations being pursued, and parliamentary processes undertaken to have legislation in place before the next election in 2020.
It is an ambitious project to get completed within three years. Let’s do this.