With New Zealand’s Tax Working Group now considering submissions to its recent public consultation, this blog looks at the scope of the ongoing tax system review, the possible timing of any changes, and what those changes might be.
The working group was formed in November 2017 and was a key election pledge of the Labour Party, which is the major partner in the current governing coalition. It is chaired by Sir Michael Cullen, former Minister of Finance from 1999 to 2008, and it’s 10 other members are drawn largely from the tax and legal profession, the corporate world, academia and policy advisory bodies.
Terms Of Reference
The mandate of the working group is to examine the “structure, fairness and balance” of New Zealand’s tax system over a ten-year period. As such, some of its remit includes high-level, but somewhat broad objectives. However, the group must also stay within strict parameters set by the Government.
While New Zealand’s tax system has been commended internationally for its simplicity and efficiency, the group will examine how to make it more equitable and consider structural changes.
The working group has been directed to report to the Government on:
- Whether the tax system operates fairly in relation to taxpayers, income, assets and wealth
- Whether the tax system promotes the right balance between supporting the productive economy and the speculative economy
- What changes to the tax system would make it more fair, balanced and efficient, and
- What changes would support the integrity of the income tax system, having regard to the interaction of the systems for taxing companies, trusts and individuals.
In examining these points, the working group has been asked to consider:
- The economic environment that will apply over the next five to ten years
- If a system of taxing capital gains or land, or other housing tax measures, would improve the tax system (excluding “family homes and the land under them”)
- Whether a progressive company tax, with a lower rate for small companies, would improve the tax system and the business environment
- How the tax system can support environmental policies.
What’s Outside Scope?
Certain areas will be outside the scope of the review, including increasing personal and corporate income tax rates, introducing capital gains tax on the family home, increasing the goods and services tax rate, and inheritance tax.
The working group is to issue an interim report no later than September 2018 and a final report by February 2019. Any significant changes legislated for from the group's final report will come into force no sooner than the 2021 tax year.
It is clearly too early in the process to know exactly what sort of recommendations will emerge from the working group or whether the Government will agree with some, all, or none of them. What’s more, the imprecise and long-term nature of some of the group’s remit doesn’t help pin down where changes could be made.
Nevertheless, we can see that there is much emphasis on expanding the taxation of property for investment purposes, and the introduction of a two-tier corporate tax also cannot be ruled out. Environmental tax reforms are also high on the agenda.