The Future of work
Tax Working Group Interim Report
By Robyn Walker
As we embrace technology, “the Future of…” has become part of our everyday vocabulary for a number of aspects of life, including work. It is fitting, therefore, that the TWG Interim Report also contains a chapter entitled “Personal income and the future of work”.
Currently the largest source of tax revenue is individuals, and in particular tax collected through the Pay as You Earn (PAYE) system. [Insert the tax revenue pie chart somewhere in the article] As organisations, people and technology change it is anticipated that there may be a change in the labour force, with a move away from traditional employment (subject to PAYE rules, with employees not able to claim deductions for work-related expenses) to more use of self-employed contractors (responsible for their own taxes and able to claim deductions for work related expenses). From a tax perspective, the concern is the possible shrinking of revenue from individuals and how to future-proof the tax system now so it can cope with rapid changes in the workforce. This may involve finding new things to tax. And it raises a related question of how to encourage more people to live and work in New Zealand.
The Interim Report makes reference to a “robot tax” to replace lost taxes on wages, but ultimately considers there will be better ways for the tax and transfer system to address problems if automation of jobs becomes widespread. This is sensible from a practical perspective as it would be difficult to define exactly what a “robot” is in order to tax it – for example, the development of a new macro in an excel spreadsheet to significantly reduce time spent on routine tasks could reduce the need for staff, but this wouldn’t be what most people consider to be a “robot”.
Whether or not our jobs are likely to be taken over by robots is a contentious topic. In all likelihood work will still exist, it will just be different. Certainly some jobs are more likely to be automated, while others will be augmented by technology. In either case, technology should free up humans for higher-order cognitive tasks.
What is also clear is that it is necessary to have systems and processes in place to support a dynamic workforce that is able to constantly reskill and upskill. But the Interim Report does not consider if the tax system can be used to support training the workforce (for example through training tax credits).
Options for responding to challenges
The report notes that Inland Revenue is already considering a number of options to reform the taxation of self-employed workers. The TWG supports that work continuing, as well as making two further recommendations for the Government to consider:
- Reviewing the GST treatment of contractors: the Interim Report suggests that requiring contractors who are essentially supplying the same services as an employee to register for GST imposes compliance costs for little benefit
- Where possible the definitions of “employee” and “dependent contractor” should be aligned for tax and employment law purposes
What is Inland Revenue already considering?
From a business standpoint, ultimately these suggestions are likely to result in more compliance costs being added until there is widespread availability and use of technology solutions.
From an employee/contractor perspective, the suggestion that “contractors supplying the same services as an employee” should not need to register for GST is a curious suggestion which would require some well thought out legislative definitions. While there may be some savings in compliance costs, there would be a real cash cost to contractors who are incurring costs (for example their own professional memberships, professional development and home office costs) who would no longer be able to claim back the GST component. Ultimately this will cause tax cascades as that extra cost is then passed through as higher charges to the employing business.
Increasing labour force participation
The Interim Report singles out one group where there could be reform to increase labour force participation; mothers. In response to submissions, the TWG has identified that the participation of mothers (and in particular low income mothers) in the labour force is sensitive to changes in childcare costs. This is true as once you also factor in childcare costs, transportation costs and the abatement of Working for Families entitlements, households can end up in a worse financial position from working.
After considering whether childcare costs should be an allowable tax deduction, the Interim Report concludes that there is a valid case for the Government to provide additional support, but through avenues other than the tax system.
Personal income tax and future of work recommendations:
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