The soon-to-be-released interim Tax Working Group (TWG) report will focus on options rather than recommendations, according to chair, Sir Michael Cullen.
Cullen said the interim report, delivered to relevant government ministers earlier this month, discusses a range of potential tax reforms “at some length”.
“There’s no specific recommendation for a capital gains tax [CGT],” he said.
However, Cullen said the final TWG report, due next February, would include a tax reform “design, consequential questions and some answers”.
While the TWG was already working on the final report he said it would incorporate any official government feedback on the interim findings plus further input from experts.
“There won’t be any formal public consultation,” Cullen said. “We wouldn’t have time to go through another 7,000 submissions.”
The TWG fielded almost 6,700 submissions in the initial consulting round that closed off at the end of April. Formed last December, the TWG emerged out of a Labour Party election promise “to ensure that there is a better and fairer balance between the taxation of income and assets, in particular the capital gain associated with property speculation”.
However, a broad-based CGT would have significant flow-on effects to other investment assets such as the – currently capital gains tax-free – Australasian shares held in portfolio investment entities, including KiwiSaver schemes.
Another batch of TWG discussion papers, to be released in conjunction with the interim report would cover tax issues for investments and savings vehicles such as KiwiSaver.
Cullen said he had “still not finally decided” whether a CGT – or “capital income tax” – was a viable solution in NZ.
In a recent speech, Secretary to the Treasury, Gabriel Makhlouf, called for a widening of “the taxation of capital income” in NZ to bring the country into line with other jurisdictions.
“The current approach to the treatment of capital income – in particular, capital gains – is highly inconsistent. Some gains are already taxed but others are not. The result is therefore something of a patchwork, the results of which can be unfair, regressive and distortionary,” Makhlouf said in the speech. “A more consistent approach to the taxation of capital gains would increase the fairness of the tax system, and reduce distortions by levelling the playing field between different types of investments.”
He said a broader capital income tax would carry a number of risks along with “higher compliance and administration costs.”
“But there are interventions available to address these risks,” Makhlouf said. The extent to which the impacts are realised – whether positive or negative – will depend significantly on the design of policy.”
The TWG interim report – currently under wraps with the Finance and Revenue Ministers – should be published at the end of this week.
