Financial transaction and wealth taxes will be on the Tax Working Group (TWG) agenda, the group’s chair, Sir Michael Cullen said in a speech to the New Zealand International Fiscal Association (IFA) conference in Queenstown. While taxes on inheritance and the family home were off the TWG table there were several other options to consider.

He told the IFA conference the potential TWG discussion points ranged from “financial transactions taxes, wealth taxes, and equalisation taxes through to a more generalised capital gains tax, land tax (but again already excluding land under the family home), and environmental taxes”.

“We are also likely to discuss the use of hypothecated [specifically targeted] taxes even though officials seem to believe the words hypothecate and apoplexy have the same ancient Greek root,” Cullen said.

The government-appointed working group has published background paper laying out the current state of affairs, challenges and details of the consultation process.

Overall, Cullen said NZ was not a highly-taxed country compared to global peers but the TWG review would inevitably tread on a few toes.

“Any tax system creates large vested interests that will oppose change,” he said. “Any change to a tax system is easily misrepresented as a tax grab, an ideological lurch, unfair, unworkable or all of these.”

In the speech Cullen said calls to lower the current NZ corporate tax rate (and align that with the top personal rate) would create “a race to the bottom in terms of revenue”. Furthermore, he said given rising fiscal costs associated with superannuation and health “taxes on capital income may, of necessity, bulk larger in the future in total tax revenue. This will be particularly so if the general trend continues for the returns to capital to grow faster than the returns to labour.”

While the TWG brief is to keep things fiscally neutral, he said the final recommendations “must be capable of sustaining somewhat higher levels of spending if that is considered necessary or desirable by future governments and their electors”.

The TWG would rate proposals according to two broad sets of standards, he said. Firstly, the group would consider the “traditional” tax factors of “efficiency, equity and fairness, revenue integrity, fiscal adequacy, compliance and administration costs, and coherence… especially with respect to the more technical issues”.

Secondly, Cullen said the TWG would weigh up proposals against the Treasury-developed ‘Living Standards Framework’, which considers four interlocking factors: financial and physical capital, social capital, human capital, and natural capital.

“Most important [the Living Standards Framework] moves the discussion beyond a narrow concentration on financial capital,” he said. “It also moves away from an implicit assumption that tax is a ‘burden’.”

Cullen said the diversity of TWG members ensured a broad range of views would frame the discussion. The TWG membership includes: independent tax consultant, Robin Oliver; PwC’s Geof Nightingale; former Belly Gully partner, Joanne Hodge; Michelle Redington, Air NZ head of tax; Craig Elliffe, University of Auckland professor; Meredith Connell lawyer, Nick Malarao; chartered accountant Hinerangi Raumati-Tu’ua; ecological economist Marjan van den Belt; Council of Trade Unions economist Bill Rosenberg; and, Kirk Hope, head of Business NZ.

“It might have been more efficient to have had just two economists and so got five opinions,” Cullen said.

Submissions to the first round of TWG consulting are due by the end of April with the final recommendations slated for February next year.

source: www.investmentnews.co.nz 4 March 2018

Background:

Labour fought the 2014 election on a policy of introducing a comprehensive capital gains tax regime of 15% on realised assets, excluding the family home.

After the 2014 election some, including new leader Andrew Little, in part blamed the CGT commitment for the calamitous nature of Labour’s defeat. Others remained of the view that the commitment was crucial to a better tax system and that there were other reasons which better explained the magnitude of the disaster. It seems likely that the proposal to undertake a more general review of the system was a compromise between these opposing views.

The vagueness of this policy left plenty of room for other parties to criticise the review, leading to some clarifications concerning limitations on the scope of the review.

source: www.taxpolicy.ird.govt.nz