Financial transaction and wealth taxes will be on the Tax Working Group (TWG) agenda, the group’s chair, Sir Michael Cullen said last week.
In a speech to the New Zealand International Fiscal Association (IFA) conference in Queenstown last week, Cullen said while taxes on inheritance and the family home were off the TWG table there were several other options to consider.
He told the IFA conference the potential TWG discussion points ranged from “financial transactions taxes, wealth taxes, and equalisation taxes through to a more generalised capital gains tax, land tax (but again already excluding land under the family home), and environmental taxes”.
“We are also likely to discuss the use of hypothecated [specifically targeted] taxes even though officials seem to believe the words hypothecate and apoplexy have the same ancient Greek root,” Cullen said.
Last week the TWG opened up for submissions from interested parties. However, the government-appointed group will publish a background paper on March 14 laying out the current state of affairs, challenges and details of the consultation process.
“We called for submissions [last week] on the basis that groups like yourselves and others will not need the background document in order to start preparing their submissions,” Cullen said. “People not so familiar with the current system may still appreciate the extra time to think about what they want to say.”
He said the background paper would highlight six points:
- the future environment within which the tax system will need to continue to provide adequate revenue to fund government programmes;
- the purposes and principles of a good tax system;
- the key features of the current New Zealand tax system;
- the key results of the current system;
- thinking outside the current system; and,
- specific policy challenges which the Terms of Reference require the Group to address.
Cullen said despite the excluded items (such as a tax on family homes or an increase in GST), the TWG terms of reference allow for a “comprehensive review of the tax system”.
“… I am of the clear view that where there is ambiguity in some of the language the Group may legitimately take a fair, large and liberal interpretation of it,” he said. “Finally, there are obviously some tensions between parts of the terms of reference. That seems to me an inevitability and could be described as simply part of the human condition.”
Overall, Cullen said NZ was not a highly-taxed country compared to global peers but the TWG review would inevitably tread on a few toes.
“Any tax system creates large vested interests that will oppose change,” he said. “Any change to a tax system is easily misrepresented as a tax grab, an ideological lurch, unfair, unworkable or all of these.”
In the speech Cullen said calls to lower the current NZ corporate tax rate (and align that with the top personal rate) would create “a race to the bottom in terms of revenue”.
Furthermore, he said given rising fiscal costs associated with superannuation and health “taxes on capital income may, of necessity, bulk larger in the future in total tax revenue”.
“This will be particularly so if the general trend continues for the returns to capital to grow faster than the returns to labour,” Cullen said.
While the TWG brief is to keep things fiscally neutral, he said the final recommendations “must be capable of sustaining somewhat higher levels of spending if that is considered necessary or desirable by future governments and their electors”.
The TWG would rate proposals according to two broad sets of standards, he said. Firstly, the group would consider the “traditional” tax factors of “efficiency, equity and fairness, revenue integrity, fiscal adequacy, compliance and administration costs, and coherence… especially with respect to the more technical issues”.
Secondly, Cullen said the TWG would weigh up proposals against the Treasury-developed ‘Living Standards Framework’, which considers four interlocking factors: financial and physical capital, social capital, human capital, and natural capital.
“Most important [the Living Standards Framework] moves the discussion beyond a narrow concentration on financial capital,” he said. “It also moves away from an implicit assumption that tax is a ‘burden’.”
Cullen said the diversity of TWG members ensured a broad range of views would frame the discussion. The TWG membership includes: independent tax consultant, Robin Oliver; PwC’s Geof Nightingale; former Belly Gully partner, Joanne Hodge; Michelle Redington, Air NZ head of tax; Craig Elliffe, University of Auckland professor; Meredith Connell lawyer, Nick Malarao; chartered accountant Hinerangi Raumati-Tu’ua; ecological economist Marjan van den Belt; Council of Trade Unions economist Bill Rosenberg; and, Kirk Hope, head of Business NZ.
“It might have been more efficient to have had just two economists and so got five opinions,” Cullen said.
Submissions to the first round of TWG consulting are due by the end of April with the final recommendations slated for February next year.