New Zealand needs smarter taxes, not a tax grab
14 January 2013
New Zealand needs smarter taxes, not a tax grab
As the country enjoys the holiday period, Grant Thornton New Zealand partner Greg Thompson is urging the Government to sit back, reflect on the fundamentals of our tax policies, and start again.
Tax is probably the last thing on Kiwi's minds as they take a break over summer.
But, as they say, tax is one of the two things in life you can count on. It's unavoidable – even while we're on holiday.
We're paying GST on the ice creams we eat; we're forking out a transport levy whenever we fill up at the petrol station, and the Government is clipping the income we're earning. There's agood reason for that – our taxes go towards paying for services we all need, such as healthcare, education and public transport.
For years New Zealanders have debated who should pay tax and how much. Various working papers over the last few yearshave debated how tax should be collected, but have generally remained fixated and hamstrung on traditional principles of taxation, despite the pace of change in the world. These traditional concepts are as out of date as the horse and cart were during the industrial revolution.
It's time we modernised our taxes. A new year presents a new opportunity for the Government to step back, take a deep breath, and go back to the drawing board on the basics of tax policy.
After years of ad hoc changes andadditions, our tax system is a mess. It's a behemoth of various tax laws and regulations, amounting to more than 3,000 pages of paper. When laid out page-by-page, the rules surrounding tax in New Zealand could pave the road from Invercargill to Kaitaia, and back again. No ordinary Kiwi can read that volume of information, let alone understand it.
New Zealanders spend too much time, money, and aggravation understanding and complying with taxes. It’s a serious handbrake on the economy. Across the political spectrum, everyone agrees that the current tax system is too complicated, yet almost every year the systemgets more complex. This is largely because our tax system is tinkered with little by little.
When building a house, you wouldn't construct one room at a time. Houses are planned from the outset, and builtfrom a blueprint. A house built piece-by-piece by different builders and architects creates a problematic and confusing structure that doesn't work.
Our tax policies work exactly the same way. For too long, successive Governments have been making piecemeal changes to our tax system that leaves it looking more like a DIY nightmare, than a modern, New Zealand home. While positive comparisons are made with archaic systems of other countries expounding thevirtues of our system, this is a foolhardy approach justifying our tax system on the basis it’s not as bad as those other really bad systems!
Compounding our propensity to play in the old sandpit reflects the fact that's all the current Inland Revenue computer systems will allow.
While the Government invests in roads and broadband, it's neglecting the core infrastructure that drives its ability to raise revenue. Inland Revenue's technology is obsolete and riddled with problems, in what Prime Minister John Key calls "a pig of a system". Inland Revenue's computer system has been around since 1991 – established the same year the clock radio was invented. The transformation of Inland Revenue's computer system is desperately needed, and must be a top priority. We cannot build a 21st century, world-class tax system using yesterday's technology.
With upgraded technology, the Government will be free to modernise the way it delivers tax and social policy services. A holistic approach to tax would simplify compliance and make services more accessible for New Zealanders. If done well, tax policy can drive economic growth. It's important we get it right. It is critical that the advantages technology can deliver are not dumbed down to efficiently deliver on a prehistoric framework. Rather new technology should be a catalyst for a modernised framework, fit for the future.
Smarter, more flexible tax policy can yield greater revenue for the Government than what another cumbersome tax grab can.
We'll soon start seeing real economic growth, as the country emerges from the global financial recession and the Canterbury rebuild gets underway so it's important the systems are in the right order to ensure we can take maximum advantage of the opportunities as they arise.
Everyone has a view on how to build greater economic growth, but few have planned for how the Government will deal with that growth once it has achieved it.
There needs to be a coherent, coordinated approach on how to fund economic growth, and a plan for the role that tax will play in funding that growth, and ensuring it does not become and inhibitor to that growth.
New Zealand is faced with a once-in-a-lifetime opportunity to get our tax structures right. The global financial crisis has shifted the goal posts and it's time we sat back and took stock of the fundamentals.
It's time for New Zealand to step outside the box and start creating a tax environment to encourage real progress.
Let's get all the right people in the same room (and that is probably not tax people) and adopt a tax system thatwill function properly, help grow the economy, and, most of all, last for the next fifty years.
2013 can be known as the year when New Zealand moved out of the dark ages and into the new century of tax reform – where it adopted an easier, simpler, more accessible tax system that helpedfuel economic growth.