Cullen-led tax working group tasked with finding fairer tax system
By Paul McBeth
Nov. 23 (BusinessDesk) - The government has appointed former Finance Minister Michael Cullen to lead a tax working group tasked with brainstorming a fairer and more balanced tax system.
Finance Minister Grant Robertson and Revenue Minister Stuart Nash announced the terms of reference for the group, which will come up with a series of recommendations by February 2019 which the government will then use to inform its policy direction at the next general election. Robertson said he isn't making a grab for cash. Reforms could be fiscally neutral and he had an open mind on whether a capital gains tax would be necessary.
"The main goal here is to create a better, balanced and fairer tax system for New Zealand," Robertson said. "Our belief at the moment is that we do not have that."
The group has been told to consider the economic environment over the next five-to-10 years and how that's affecting changing business models, demographics and business practices; whether some form of housing, land or capital gains tax would improve the system; whether a progressive company tax with lower rates for small businesses would improve the system and business environment; and what role tax can play in delivering environment benefits.
The government campaigned on establishing the working group, having dropped its policy favouring a capital gains tax to deal with massive gains in house prices after former leader Andrew Little judged it was part of the reason for Labour's losses at both the 2011 and 2014 elections. His replacement, Jacinda Ardern, again ruled out a capital gains tax on the family home during the 2017 election campaign, although Labour intends extending the so-called 'bright-line' test introduced by the previous government. That test currently makes gains on the sale of residential property sold by non-owner occupiers within two years of purchase taxable. The new government will extend that to five years.
Roberston today said the government wants to address the issue where property speculators haven't paid tax on income from selling houses at a profit whereas salary and wage earners' incomes are captured.
The working group is expected to comprise eight people, including Cullen, and while there will be tax experts, Robertson said input from business, working people, and Maori enterprise would also be sought. The rest of the group will be announced before Christmas.
The group has been told not to look at increasing income tax rates or the rate of GST, inheritance tax, a tax on the family home, or the adequacy of the personal tax system and its interaction with the transfer system. It has been directed to look at technical matters already under review such as international tax reform targeting multinational profit shifting, and the tax department's business transformation programme.
While the issue of applying GST to goods and services bought online from overseas could be dealt with separately and was not part of the working group's brief, Robertson said the group could examine exemptions from GST for particular categories of goods. Labour's coalition partner in government, NZ First, has campaigned for years to remove GST from fruit and vegetables.
Robertson said the group will be able to look at the tax treatment on savings and investment, which has cropped up in previous reviews as an area in need of reform.
While personal income tax rates are out of scope, Roberston wants the group to dig into the changing nature of the workforce as the rising tide of automation and digitisation changes businesses' labour requirements.
"In 10 or 15 years' time people might have multiple employers, might be working for themselves. The interaction between the tax they pay and those different roles is one of the issues we want to look at," he said.