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Tax Working Group – submissions are open

Tax Alert - April 2018

By Emma Marr

On 1 March 2018 the Tax Working Group (TWG) announced that it is seeking the views of as many New Zealanders as possible about the future of tax.  Submissions opened immediately, and an updated website and Future Tax, the Submissions Background Paper (the Paper) was launched on 14 March to provide more assistance.

Group chair Sir Michael Cullen says now is the time for people to start thinking about what changes they would like to see to the tax system. "This won't be your regular tax consultation," Sir Michael said, "The experts will have a role to play but we're really keen to hear people's own experiences about what works and what needs improving."

The TWG’s two-month consultation period will run until the end of April, with an interim report due in September 2018, and a final report in February 2019.  Submissions can be sent to submissions@taxworkinggroup.govt.nz.

The Background Paper

Sir Michael Cullen also spoke about the TWG at the International Fiscal Association conference on Friday 1 March 2018.  After noting that the scope of the terms of reference is being interpreted very widely, he gave an advance outline of the issues covered in the Paper, which is intended to help inform submissions.  Now released, the Paper covers six topics:

  • The future environment
  • The purposes and principles of a good tax system
  • The current New Zealand tax system
  • The results of our current system
  • Thinking outside our current system
  • Specific challenges

The future environment

The Paper asks submitters to identify the main risks, challenges, and opportunities for the tax system over the medium- to long term, and how the tax system should change in response to them.  Challenges and opportunities identified by the TWG include changing demographics (the ageing population), the role of the Maori economy, the changing nature of work, technological change, environmental change and the impacts of globalisation.

Purposes and principles of a good tax system

This section of the Paper discusses what tax is, and the role taxes play in the wellbeing and living standards of New Zealanders. The Paper outlines Treasury’s Living Standard Framework, which seeks to measure intergenerational wellbeing. The Paper discusses the concepts of distribution and equity, the efficiency of taxes, and the principle of tax incidence – who ultimately bears the cost of tax.

The current New Zealand tax system

The Paper poses the question: New Zealand’s broad-based, low rate system has been in place for over 30 years – is it still the best approach for New Zealand, or should it be replaced?

The Paper outlines how much tax is collected in New Zealand and what is taxed.  New Zealand collects 90% of tax revenue from individual income, company income and GST.  The role of taxes in altering behaviour, and the role taxes should play in retirement savings is also discussed.  

The results of the current tax system

This section of the Paper expands on the discussion of the outcome of our current tax system, asking the following questions:

  • Does the tax system strike the right balance between supporting the productive economy and the speculative economy?  If it does not, what would need to change to achieve a better balance?
  • Does the tax system do enough to minimise costs on business?
  • Does the tax system do enough to maintain natural capital?
  • Are there types of businesses benefiting from low effective tax rates because of excessive deductions, timing of deductions or non-taxation of certain types of income?

Thinking outside the current system

In this section of the Paper the TWG asks whether we should consider introducing any new taxes, and discusses taxes that other countries have, such as financial transaction taxes, wealth taxes and payroll and social security taxes.  The potential role of hypothecated taxes is raised – taxes that are raised to fund specific spending objectives.

Specific challenges

The TWG’s Terms of Reference provide some specific areas for the TWG to consider:

  • How and to what extent does the tax system affect housing affordability, and how should the tax system change to address that?
  • Should New Zealand introduce a capital gains tax (that excludes the family home)?  If so, what features should it have?
  • Should New Zealand introduce a land tax (that excludes the land under the family home)?  If so, what features should it have?
  • What are the main opportunities for effective environmental taxation?
  • Should the tax system do more to support small businesses?  Is there a case for a progressive company tax?
  • Should the tax system exclude some goods and services from GST?  If so, what should be excluded?  What else should be taxed to make up for the lost revenue?

Scope of the TWG

Some issues are specifically outside the scope of the TWG.  This includes increases in the rates of income tax or GST, a capital gains tax on the family home or the land under it, and matters already under review by Inland Revenue, such as BEPS and the IRD’s Business Transformation Programme.

Further information

Any recommendations made by the TWG are expected to be fiscally neutral, and also to be capable of sustaining higher government spending if that is desired in future.  Further information on the TWG can be found on the TWG website, and Sir Michael’s speech, with more detail about the terms of reference, process, timelines, the Submissions Background Paper and various fact sheets can be found here.

April 2018 Tax Alert contents

 

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