Redundancy Pay Rebate Bad Tax Policy

“The government’s move to introduce concessionary tax treatment for redundancy pay is bad tax policy and represents poor process”, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

He was commenting on the Supplementary Order Paper that effectively reduces tax on redundancy pay from 39 cents in the dollar to 33 cents for people who would otherwise face the top tax rate on redundancy pay.

“The government has consistently refused to make the tax scale flatter and simpler, as recommended by the 2001 McLeod Tax Review”, Mr Kerr said. “This is the straightforward solution to the problem.

"Other factors that temporarily push taxpayers into higher tax brackets are ignored. For instance, a lump sum payment of ACC, which could relate to more than one tax year, would be taxed at the taxpayer's marginal rate.

“The government has introduced a raft of selective reductions to the top 39 cent tax rate, of which redundancy pay is the latest. Others include KiwiSaver and other PIE schemes (which cap the tax rate at 30 cents and exclude family income assistance and student loan repayments when computing tax on certain savings), the R & D tax concession, the retention of the trustee rate at 33 percent and the forthcoming reduction in the company rate to 30 percent (which encourage certain personal income to be channelled through these vehicles).

“All these are a response to the problems of high statutory tax rates. A far better approach is simply to cut them. The selective concessions are taking the tax system back to the complexities and distortions of the Muldoon days.

“Moreover, the Generic Tax Policy Process, involving proper consultation and feedback, is being increasingly ignored. The SOP allows the move to escape the GTPP and proper parliamentary scrutiny..

“Finance minister Dr Cullen is correct to say that National’s record in cutting high personal and company tax rates is no better”, Mr Kerr said. “However, that is no excuse for ignoring the recommendations of the last official Tax Review in 2001. While the Business Roundtable would have preferred the Review to have gone further towards a flatter tax scale, in line with countries in our region such as Hong Kong and Singapore, it clearly pointed the right way forward.

“In framing tax policies next year, it is to be hoped that both major political parties base them on the professional advice of the Review group and avoid further ad hoc tax initiatives”, Mr Kerr concluded.

ENDS

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