The Tax Working Group (TWG) has reached a “few tentative conclusions” prior to wading into the almost 6,700 submissions it received during a just-closed consultation process, according to chair, Sir Michael Cullen.
“But there’s a long way to go before we reach any major conclusions,” Cullen said.
Firstly, the TWG must parse the 6,700 or submissions, of which about 200 were lobbed in by groups and the remainder by individuals.
“From what I’ve seen of the submissions so far, just about every position you could take on taxation has been taken [across various submissions],” he said.
Cullen said the TWG would consider the submissions before digging deeper into some of the more substantive issues.
“We’ll sort out between ourselves which submissions might be worth following up on with interviews… but we won’t have time to interview everyone,” he said. “I’m quite keen to get groups with different points of view talking to each other.”
The TWG has a wide brief to review the NZ tax system (with some important exceptions) including some that underpin the local funds management industry.
Most notably, the TWG will consider the merits of a comprehensive capital gains tax (excluding the family home) that could remove significant incentives within the portfolio investment entity (PIE) regime.
Currently, the PIE rules exempt most NZ and Australian shares from a capital gains impost that may apply to non-PIE investors. The TWG will also have purview over the controversial foreign investment fund (FIF) rules – introduced in 2007 – that impose a deemed tax on 5 per cent of the value of offshore holdings for fund investors.
In an explanatory note, the TWG says it “has identified eight broad challenges, risks, and opportunities that will affect the tax system over the coming decade and beyond”, namely:
- Fiscal pressures associated with changing demographics, especially the aging population;
- How the Māori economy could lift NZ living standards;
- the changing nature of work;
- new business models available with technological change;
- falling global company tax rates;
- environmental challenges such as climate change;
- increasing worries about income inequality; and
- the changing nature of globalisation.
“Our tax system will need to be sufficiently robust to deal with these challenges, and sufficiently nimble to take advantage of the opportunities,” the TWG note says. “There will also be other shocks and surprises that we have not considered and cannot foresee.”
Last week the TWG also released results of a series of straw polls conducted during the submission process that found the majority of those surveyed wanted changes to the NZ tax system.
Just 13 per cent of more than 4,100 people polled opted for the tax status quo while about 80 per cent said the system needed some or major changes: over half wanted ‘major changes’ or a ‘complete overhaul’ of the NZ tax rules.
Introducing a capital gains tax on current exempt investments scored highest (734 votes) as the most important tax issue while funding retirement (618) and protecting the environment (447) also rated highly.
While “not scientific” the polls, which attracted about 16,000 votes, also found almost 50 per cent felt tax would not make housing more affordable: about a third said the opposite.
The TWG interim report is due this September.