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Election 2020 – What role does tax have to play?
Tax Alert - October 2020
By Robyn Walker and Brendan Ng
The lead up to an election is always an intriguing time, with parties and politicians competing for airtime and taking turns to gain the upper hand. While tax might seem like a more minor issue this time around (think capital gains tax and the proposed Tax Working Group from the last election), COVID-19 and its disruptive effects mean that tax, the government’s main source of revenue, is actually an important driver in helping New Zealand’s economy recover and thrive. It can also be a lever to pull (or not to pull) to incentivise spending to stimulate the economy, to redistribute wealth, and drive investment in the right areas.
With this in mind, in this article we’ve summarised some of the key tax policies from the major political parties in one place for easy reference, highlighting any noteworthy differences, surprises, and other points to note.
Will my personal income be taxed the same?
With COVID-19 directly affecting the earning power of many New Zealanders, employment levels, and economic confidence, it’s no surprise that many parties are suggesting changes to the personal tax rates / thresholds. On one end of the spectrum are Labour and the Greens, with Labour proposing a new personal income tax rate of 39% for any income earned above $180,000. The Greens have proposed introducing two new income brackets, at 37% for income earned between $100,000-$150,000 and 42% on income earned over $150,000.
The parties at the other end of the spectrum are focused on what are effectively tax cuts, with ACT suggesting flatter tax rates by cutting the 30% tax rate (on income earned between $48,000 to $70,000) to 17.5%. National has suggested adjusting the tax bracket thresholds upwards (temporarily until 31 March 2022) so that individuals on average incomes pay less tax. The New Conservatives also suggest raising the tax thresholds (with an income free tax threshold of $20,000), and both the New Conservatives and National propose to index the brackets (to inflation and the cost of living respectively).
See the various parties tax policies for the Election 2020.
Election 2020 - Tax Policies
What changes are proposed for business?
A few of the parties have suggested tax changes for businesses, largely to incentivise spending and investment, or to reduce compliance costs. None of the party policies are particularly radical (at least not as radical as a capital gains tax), but there are some potential savings / accelerated deductions available for businesses as a result of some of the proposals.
National proposes to temporarily raise the threshold for an immediate deduction for capital assets from $5,000 to a whopping $150,000 per capital asset, with a doubled depreciation rate for property, equipment and machinery over this amount to incentivise investment in these assets. Further, National also proposes:
- Any assets whose depreciated value falls below $3,000 can be fully expensed.
- The number of depreciation rates will be consolidated and reduced, and also reviewed to incentivise investments in energy efficiency and safety equipment.
Some changes are proposed to reduce the compliance costs imposed on business through the tax system, particularly in relation to small businesses. Labour proposes to overhaul AIM to make it easier for SMEs to move to a pay as you earn model throughout the year, while National proposes increasing the provisional tax threshold from $5,000 to $25,000 and raising the GST registration threshold from $60,000 to $75,000 turnover per year. National also proposes changing the UOMI rates to reflect appropriate credit rates and increase the interest rate paid on amounts owed by IRD to its customers.
NZ First proposes to accelerate depreciation (at similar rates to Australia) and also proposes tax concessions for certain business start-ups in rural and regional New Zealand.
The Opportunities Party proposes a flat 33% tax rate on all income from all sources (up from the current 28% company tax rate or 17.5% Māori Authority tax rate). They also propose to abolish the provisional tax regime for SMEs.
Changes to the taxation of property
While a capital gains tax may not be getting the usual amount of airtime this election, a 2% unrealised capital gains tax on residential property (other than the whānau / family home) is a policy of the Māori Party.
The Opportunities Party proposes a yearly minimum property tax under which the equity value (total value less debt) of property investments would be subject to tax, as calculated annually using a 3% risk free rate of return approach. This tax would be paid at a rate of 33%, with various options available if there was no cash to pay the tax.
While not overtly announced (at time of writing), National’s economic and fiscal plan includes in its figures the cost of repealing the recently enacted rules to ring-fence residential property losses and to reduce the residential property brightline test from 5 years to 2 years.
Other points of note
Some other noteworthy proposals include:
- The award for the most radical approach probably goes to The Opportunities Party, who propose a tax-free universal basic income for every New Zealander of $250 per week.
- The New Conservatives suggest exploring an “Every Transaction Tax" (as a possible replacement for GST), under which all transactions would be subject to a small amount of tax. They also propose removing the tax-on-tax effect that GST has, such as removing GST from fees, rates and excises imposed by the government.
- None of the parties suggest using the tax system to incentivise positive environmental behaviour, other than National and The Opportunities Party who suggest removing FBT from electric vehicles (in National’s case only until 2025) to encourage businesses to move to electric vehicles in their fleets.
- Both Labour and the Greens refer to working with the OECD to find a workable global solution for taxing digital services, but propose to implement a digital services tax to tax highly digitalised businesses if a global solution cannot be found.
- The Greens propose to introduce a new net wealth tax of 1% on an individual’s wealth above $1 million and 2% on an individual’s net wealth over $2 million.
- ACT proposes to temporarily cut the GST rate from 15% to 10% (ending June 2021).
In saying that, of the myriad of policies that have been announced, the likelihood is that the tax policies of either Labour or National will ultimately shape any post-election tax changes. All in all, most of the political parties have put forward tax proposals that could affect you or your business, using different levers to achieve different outcomes that fit with their party policies.
If you would like to discuss how any of the proposed policies could affect you, please contact your usual Deloitte advisor.
October 2020 Tax Alert contents
- Election 2020 – What role does tax have to play?
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