Address to the Accountants and Tax Agents Institute of NZ
Hon Todd McClay
Minister of Revenue
7 March 2014
Address to the Accountants and Tax Agents Institute of New Zealand (ATAINZ) annual conference
Thank you for inviting me to be with you today.
It is less than a year since I took over the Revenue portfolio and it is the first time I have had the pleasure of addressing your conference.
Since becoming Revenue Minister, one thing I have learned very quickly is that a tax system that comprises good tax policy supported by good administration is an essential part of a competitive and growing economy.
It is this Government’s strong economic record that I want to touch on first.
I would like to take a moment to reflect on the challenges we have faced over the last 5 ½ years and the significant progress we have made since the Global Financial Crisis.
The National-led Government’s economic programme with more jobs and rising incomes is delivering positive results.
The New Zealand economy continues to expand, and despite a severe drought last summer, growing at 3 ½ per cent in the year to September 2013. This was among the higher annual growth rates in the developed world.
So New Zealand is well placed compared to most countries
There are over 66,000 more people employed now than a year ago, and the unemployment rate, currently at 6 per cent, continues to drop as the economy gathers strength.
Compare this with the average unemployment rate in the OECD of 7.6 per cent, the United Kingdom which is currently at 7, or the United States at 6.6 and it puts things into context.
Never mind the frightening statistics out of Spain where current youth unemployment sits at 57.7 per cent.
Even in Australia we are seeing unemployment grow as their economy staggers.
On average, wages are increasing faster than inflation, business confidence is at its highest level in 20 years and the terms of trade remain high.
At the height of the GFC tax revenue fell from $56 billion in 2008 to $50 billion by 2010. It has subsequently recovered to $58.1 billion in 2013, and is forecast to grow to $77 billion by 2018.
However, while the recovery is gathering momentum, the global environment still remains uncertain.
It is therefore important to maintain clear and credible economic and fiscal settings, as this is the best way to encourage growth, create new jobs, raise incomes, and help families get ahead.
The Government is on track to deliver a modest surplus in 2014/15.
However, while this is good news National will not be entering into an election-year lolly scramble like Labour and the Greens will do.
Unlike our opponents the National-led Government remains committed to responsible long-term fiscal management.
Budget 2014 will continue the Government’s
• Responsibly managing its own finances and returning to surplus.
• Pushing ahead with wide-ranging microeconomic reforms to create a more productive and competitive economy.
• Driving better results and better value for money from public services.
• And supporting the rebuilding of Christchurch.
Providing we stick with our programme, New Zealand is well-placed to take advantage of the many opportunities available over the next few years.
Our response to the Global Financial Crisis was not one of flashy sound bites or make it up as you go along. Instead, we responded to that crisis in a measured way, with a clear and definite plan and without a sense of panic.
At the heart of this is our broad-based, low-rate tax settings (or “BBLR”).
The importance of BBLR
BBLR refers to the tax settings. In simple terms, it means that taxes are applied widely so that everyone pays their fair share, and that tax rates are kept low.
A simple but incredibly important concept.
I appreciate that tax is a burden on the economy, but it is the role of a prudent government to minimise that burden while continuing to deliver services and functions that New Zealanders expect.
Obviously to do these things within an environment of strict fiscal restraint and without borrowing further, we need to raise revenue.
So how do you go about doing that?
Some governments have looked at new taxes, such as a financial transactions tax to raise revenue.
That has not been our approach.
We have also resisted the impulse to stifle the economic recovery by raising tax rates.
In fact we’ve reduced rates – the top personal tax rate and the company tax rate have both come down along with every tax rate in each of the income bands.
What we are doing is working with the system we have, which is in pretty good shape after the reforms of Budget 2010, and ensuring that the tax burden is shared equally and that the current rules are working fairly and as intended.
So our economy is righting itself, not through reckless new tax regimes, but through sensible measures which aim always to ensure fairness in the tax system and to minimise compliance costs on businesses.
Our broad based, low rate tax system minimises the economic burden and gives businesses the certainty they need while ensuring that revenue is collected efficiently so that it can provide New Zealanders with high quality services such as, education and healthcare.
In his opening address to Parliament this year, the Prime Minister confirmed the Government’s continued support for our broad-base, low-rate tax system and tax policy work which continues to fine-tune the system.
The focus is on making the system work even better.
To illustrate this, I invite you to look at the Government’s tax policy work programme.
Most recently we have passed new legislation which introduces financial reporting rules which take effect from 1 April 2014.
The new rules will relieve medium sized companies of much of the compliance costs associated with financial reporting.
As with all significant policy proposals, the proposal was the subject of public consultation and I was pleased to see ATAINZ listed amongst submitters on the proposals.
The submissions agreed that the key issue is balancing compliance costs against Inland Revenue’s information requirements.
As a result of the submissions compliance costs have been reduced from what was proposed. My officials thought that the ATAINZ submission, which focused on compliance costs was to the point and constructive. I thank you for that.
The resulting legislation is better for your contribution and will significantly reduce compliance costs.
I hope that you will continue to make your voice heard.
Jim Gordon from IRD will speak further on financial reporting and its implications for you later on in the conference.
Other work in the tax policy work programme includes the proposal to cash-out R&D tax losses in the income year in which they arise; considering on-going boundary and remedial issues stemming from removal of depreciation on buildings and reviewing whether the tax pooling rules are operating as intended.
These are policies aimed at further strengthening our broad-base low-rate tax system.
But while we continue to strengthen the system by improving tax policy, the other aspect of the tax system — the administration needs attention.
My job, as the Minister of Revenue, is primarily to oversee the development of fair and efficient tax policies which will deliver the necessary revenue to fund government services and support the Government’s objectives for the economy.
New Zealand’s tax system enjoys a very good reputation internationally. Our GST for example is generally viewed as the model for efficiency and simplicity and our international tax rules are world-leading.
But we can only put in place the very best policies if the tax administration is equal to the task. So I am also deeply interested in ensuring that New Zealand’s tax administration is fit for the demands of the 21st century.
I might add that the desire to minimise compliance costs which we see in tax policy development is also a guiding principle for the overhaul of our tax administration.
You may have read the news reports about Inland Revenue needing a new computer system. The truth is that IT changes are just a part of what Inland Revenue is undertaking.
The approach we have agreed to is about modernising the tax system by re-engineering IRD’s business processes to become more customer focussed, supported by new technology.
The department’s change programme has been broken into four customer-focused stages.
The first stage is about enabling secure digital services and includes work to improve the collection of PAYE and GST information from business.
It is envisaged that a business’s payroll system will be able to be used to meet its PAYE information obligations without the need to complete a separate form by allowing the B2B transfer of PAYE information.
The process will allow for Inland Revenue to ensure new employees are using the correct tax codes and the like.
Subsequent stages will build on this work.
Stage 2 is aimed at streamlining income tax and business tax processes.
This would be an opportunity to consider the policy settings for the administration of RWT, provisional tax and the like.
Stage 3 would look at streamlining the delivery of social policies that IRD administers such as Child Support and Working for Families tax credits.
Stage 4 completes the transformation and will include transitioning the remaining taxes and social policy to the new platform.
As you can see, the transformation programme creates opportunities for the Government to change the administrative policy settings to truly modernise our tax administration.
One of the strengths of our tax policy development process is its emphasis on engaging early and regularly with the community — such a process ensures policies are more workable.
We want to apply that concept to IRD’s transformation by engaging with a cross section of New Zealand. We want to hear from you – your ideas on ways to improve the tax system, how we can make it easier for you to do your business, and how we can give New Zealanders more certainty about their tax affairs.
I have therefore asked IRD to look at a range of options that will allow New Zealand businesses and individuals to provide input into the process of making NZ’s tax system fit for the 21st century.
I can’t promise that all suggestions will be adopted — we need of course, to always be maintaining a balance between the needs of the community, business and the Government. But I can promise that we will listen to you and take your feedback on board.
And through all this, business as usual must continue.
Tax must continue to be collected with the minimum of fuss and people must receive their correct entitlements.
I said earlier – a tax system that comprises good tax policy supported by good administration is an essential part of a competitive and growing economy..
We know that we have some of the best tax policies in the world. And our broad-based, low rate system provides taxpayers and businesses with stability and certainty.
Businesses know that the New Zealand tax system aims to impose very little compliance cost and aims to increase the size of the New Zealand economic pie by avoiding distortions.
This encourages investment into the productive sector, which is clearly good for our economy.
The government has an on-going programme of maintaining a broad-base, low-rate tax system that does as little as possible to distort the decisions of businesses and individuals. We’re sticking to the BBLR framework as that’s the recipe for success.
Our tax administration on the other hand is in need of an overhaul. Not just a new IT system, but entirely new processes to meet the changing needs of businesses and individuals.
This is not an overnight change, but when we get there, we’ll have the world class tax system that New Zealanders require.