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General Election forces innovative tax policy discussion

General Election forces innovative tax policy discussion

The General Election on September 23rd is a tight race between the National incumbents and the Labour challengers. Labour has put taxation policy on the table as an election issue and this is leading to robust discussions about how to make taxation fairer and more redistributive.

Terry Baucher, tax advisor at Baucher Consulting says

“Both Labour and National for the past 30 years have followed the mantra of broad-base, low-rate tax but have not taken the plunge with either a comprehensive capital gains tax (CGT) or some form of asset tax. A CGT which applied to the family home would be very unpopular as would a land tax also applicable to the land around a family home. My belief is that the distortions which have arisen from effectively excluding property from significant taxation are probably politically unsustainable in the long-term particularly if home-ownership rates continue to fall.”

The Labour party leader Jacinda Arden has announced that Labour would both broaden the “bright line test” on sales of residential property, limit negative gearing and also form a Tax Working Group to review tax policy.

Terry’s recent article on the possible agenda and composition of a New Zealand tax working group has received a lot of commentary. This illustrates how New Zealanders feel about the topic. This group will probably be asked to look at a Diverted Profits Tax as part of a clampdown on multi-national tax avoidance.

If the National Party were to be returned to office, they are proposing legislation that goes further than the OECD BEPS approach, particularly in relation to restricting interest deductions on group cross-border lending arrangements. They are also proposing expanding anti-avoidance rules to tighten the tests around permanent establishments.

Separate from whatever both parties may be proposing, we know that officials are always working on alternatives in the background. NZ Treasury has apparently been modelling the effect of increasing the rate of Goods and Services Tax (GST) from 15% to 17.5%. The increase in the rate of GST from 12.5% to 15% in October 2010 was not heralded during the 2008 election although its effect was partially mitigated by income tax cuts. If GST was increased, I would expect to see a similar adjustment to income tax thresholds and rates.


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