'First Principles' Debate On Tax Welcomed

The New Zealand Business Roundtable has strongly endorsed Finance Minister Michael Cullen's stance of avoiding pre-emptive comment on the Tax Review's paper and calling for a 'first principles' debate on the issues it raises.

"The paper is a high quality contribution to tax policy", the executive director of the Business Roundtable, Roger Kerr, said today. "Too many recent policy changes have not been based on rigorous and comprehensive policy analysis, and the open approach being taken by the government is welcome".

Mr Kerr said he believed there would be little disagreement among tax experts on the paper's:

• general endorsement of the direction of tax policy over the last 15 years;

• emphasis on tax policy changes directed at the government's goals of making New Zealand attractive to internationally mobile capital and labour and promoting economic growth;

• support for the realignment of the top rate of personal tax and company tax and the lowering of high marginal tax rates;

• suggestion that the level of tax on inward foreign investment should be reduced other than by lowering the company tax rate alone;

• view that income tax should continue to be applied on an individual rather than a family or household basis;

• favourable verdict on GST;

• criticism of past arguments for excise taxes;

• conclusion that cash flow taxes, financial transactions tax (including taxes on foreign exchange transactions), realised capital gains and wealth taxes, a tax-free threshold and the provision of a universal basic income should not be adopted; and

• opposition to specific incentives for savings and other tax concessions.

The review raises the possibility of achieving additional reductions in rates of tax by extending the income tax base. However, the level of spending is the key to a reduction in taxes as it is the best overall measure of the tax burden. Regrettably, spending levels were not included in the review's terms of reference. If the income tax base is not extended, the argument for lowering high rates to reduce tax distortions is even stronger.

"The review group is absolutely right to argue that New Zealand should aim at tax policies that make it "stand out from the crowd", Mr Kerr concluded. "This means essentially a lower and less distortionary tax environment than comparable countries and a simple tax system that minimises compliance costs. All the suggestions in the issues paper warrant careful and full consideration".

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