Tax Budget of the decade
Tax Budget of the decade
This week¹s Budget announcement is a unique opportunity to set the stage for economic growth, says NZ Institute of Chartered Accountants (NZICA) Tax Director Craig Macalister.
Tipped as the most influential ³tax Budget² of the past decade, it is widely expected to contain a rise in GST, cuts to personal tax rates, adjustments to the depreciation regime and measures to restrict the tax benefits associated with rental properties. We may also see some tinkering with rules to further limit interest deductions being claimed in NZ by non-residents.
³New Zealand needs a prudent, workmanlike Budget that emphasises growth policies. Tax is an important component of those policies,² Mr Macalister says.
NZICA supports a simple, broad-based tax system that is efficient to administer and delivers equitable tax treatment across all taxpayers. The Institute represents more than 31,000 chartered accountants in New Zealand.
NZICA will be hoping for further announcements around the Budget on a commitment to fiscal and regulatory responsibility, moves to improve the performance of State Owned Enterprises, and investment in research and development targeted at commercial opportunities, Mr Macalister says.
³By signalling changes to the taxation of rental properties, the Government is moving to discourage property speculation and encourage investment in more productive sectors of the economy. A clear focus on research and development would support that.²
However, Mr Macalister warns that ³ring-fencing² losses on rental properties has been tried before, with mixed results.
³Targeting rental property owners may not be the best way to address issues around the taxation of capital investment. We would welcome moves by the Government to make the tax system simpler and fairer to all taxpayers. Only that will deliver a more efficient and more effective system.²
NZICA supports the signalled removal of depreciation on buildings where there is no evidence of depreciation.
³This was recommended by the Tax Working Group and we support the move in the hope that this tightening is applied evenly, across all property.²
There has been a clear message from the Government that it will try to control debt, but should not halt personal tax cuts, Mr Macalister says.
³There is an economic effect that counterbalances the arithmetical reduction in the tax take as the deadweight cost of complex tax structures is removed and the taxpayer can focus on their business instead of their tax burden.
³Cuts to personal tax rates, combined with better alignment is likely to have a positive effect on the tax take so long as the changes remove incentives to shelter income in trusts, companies or other tax structures.²
This could be achieved by aligning the top personal tax rate more closely with the rate applied to trusts and companies.
The Government is expected to raise GST to 15% from 12.5%, a move supported by NZICA as a fairer and more efficient model of tax collection.
³NZ needs to move away from a system that relies heavily on income taxes to a system that has a better balance between income and expenditure taxes.
³The combination of improvements to the tax system and a focus on productive investment should help New Zealand¹s economic growth over time,² Mr Macalister says.