By Grant Robertson, Minister of Finance.
OPINION: The Coalition Government’s economic plan is to modernise the New Zealand economy so that it is fit for the 21st Century.
We’re helping businesses to innovate, investing in our regions and green technology, and ensuring that our training providers teach the skills that our businesses need to grow.
We are running surpluses, keeping debt under control, investing in infrastructure and supporting family incomes through the Families Package.
As with any Government, tax settings are one part of the equation when it comes to an overall economic strategy. We’ve already made changes to the tax system - including the $1 billion R&D tax credit for Kiwi businesses investing in new research and product development, and cracking down on the multinational companies not paying their fair share.
Overall, our economic strategy is the base for ensuring more productive and sustainable economic growth, while making our society fairer and ensuring families and those on low and middle incomes are well supported.
The notion of fairness in the economy emerged again last week when the Tax Working Group published its final report.
When we set the Group up a little over a year ago, we gave it a straightforward task: to review the structure, fairness and balance of New Zealand’s tax system.
The report last week found that our tax system, in large part, works well. It is clear and simple.
But this group of experts highlighted some areas for improvement so that there is greater fairness and balance. In particular, its findings focussed on the issue of untaxed income made when assets – excluding the family home – are sold for a capital gain.
In essence, they have said that ‘income is income’, and that all income should be treated the same for tax purposes. That’s whether it’s made by wage earners who already pay tax on every dollar, or whether it’s income made by people selling a second property or shares for a profit.
The Tax Working Group has said that closing this difference in how income is treated would account for between 0.4 percent of the Government’s total annual tax base in year one and 2.5 percent of the tax base in year five – if its recommendations were taken up.
It’s important to remember that the recommendations are not backward-looking. If we were to take up the Group’s proposals, all gains made up until the point any new tax comes in will be protected. Also, the proposals mean tax would only be paid on realisation (effectively the sale) of an asset.
We specifically asked the Group to recommend options for a tax switch, where any new revenue brought in through taxing capital income like other income, is matched by tax cuts on the other side – particularly for wage earners and Kiwisavers. These tax switch options would mean the vast majority of New Zealanders would be better off under the Group’s proposed packages.
Businesses would also benefit too. The Group has also made a number of interesting recommendations for changes to the tax system which would help small businesses get off the ground and grow – through changes to how losses are treated in the early years, and further tax breaks for those who spend time and money looking into new ways of doing business.
We are now reviewing the Group’s recommendations, and looking to reach a measured consensus between Government parties on how we respond. The Government is not bound to accept all of the recommendations in the report.
Now is the opportunity for New Zealanders to discuss the issues raised by the Tax Working Group – and we encourage a robust, but sensible discussion which focusses on the potential packages of reform that the Working Group has recommended, rather than just the one or two aspects that generate the most headlines.
We welcome feedback on these packages from all New Zealanders. The Government plans to announce our response to the Report in April. If we go ahead, nothing arising from the Group’s recommendations would come into force until the 2021 tax year – after the next election. We’re taking into account the feedback we’re receiving, including from small businesses and farmers, as we discuss the recommendations and come to a consensus on our response.
If we are all able to keep the debate sensible and reasoned, and debate the facts rather than the rhetoric, we believe that whatever outcome emerges from this debate will help our country become a fairer and better place to live and raise a family for all New Zealanders.
Grant Roberston is the Minister of Finance.