Tax Working Group

The Tax Working Group is an advisory body that was created by the New Zealand Government in late 2017 to investigate ways of reforming New Zealand's taxation system and making it "fairer." Some key areas under its purview include the Goods and Services Tax and alleviating the housing market. The Working Group is headed by former Finance Minister Sir Michael Cullen.[1][2]

Mandate and functions

The Tax Working Group was established on 20 December 2017 with the stated goal of "examine further improvements in the structure, fairness and balance of the tax system." The Working Group will report to the New Zealand Government on the following matters:

  • 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.
  • Whether there are changes to the tax system which would make it more fair, balanced and efficient.
  • Whether there are other changes which would support the integrity of the income tax system, having regard to the interaction of the systems for taxing companies, trusts, and individuals.[3]

The Tax Working Group's responsibilities includes:

  • Forecasting the economic environment for the next 5–10 years; taking into account demographic changes, changes in technology and employment practices, and their impact on business models.
  • Investigating whether a system of capital gains taxation or land taxation (excluding the family home or the land under it), or other housing tax measures would improve the taxation system
  • Investigating whether a progressive company tax (with a lower rate for small companies) would improve the taxation system and the business environment
  • Investigating what role the taxation system can play in delivering positive environmental and ecological outcomes over the longer term.[4]

Areas outside the purview of the Working Group include: increasing any income tax or the GST rate; inheritance tax; the taxation of the family home or the land under it; the adequacy of the personal tax system and its interaction with the transfer system; and technical matters such as international tax reform under the base erosion and profit shifting agenda and policy chances as part of the Inland Revenue Department's Business Transformation programme.[4]

History

Formation and membership

Following the formation of a new Labour-led coalition government in the weeks after the 2017 general election, Prime Minister Jacinda Ardern announced that the incoming government would establish a Tax Working Group under its 100-day plan.[5] On 23 November, it was announced that former Finance Minister Sir Michael Cullen would be heading the Working Group. While the Tax Working Group would have a mandate over New Zealand's taxation system, it was directed to look at specific areas including the Goods and Services Tax and alleviating the housing market. While the Working Group would not have the power to change the GST rate, it would be able to advise on removing or adding GST to certain goods such as female hygiene products, fruits, vegetables, and "basic food items."[1]

On 20 December, the New Zealand Government announced that the Tax Working Group would consist of a mixture of individuals from various backgrounds including academics, tax experts, and people with private sector, union, and Māori community experiences. In addition to its Chair Sir Michael Cullen, other Working Group members would include:

The Tax Working Group is due to hold its first meeting at the end of January 2018.[2]

Proposed capital gains tax

In mid-February 2019, the Tax Working Group recommended that the New Zealand Government implement a capital gains tax (CGT) and use the revenue generated to lower the personal tax rate and to target polluters. This proposed capital gains tax would cover assets such as land, shares, investment properties, business assets and intellectual property. It proposed setting a tax rate of 33% at the income-earner's top rate level. The Tax Working Group also proposed raising social welfare net benefits to allow low-incomer earners to cope with to post-tax threshold adjustments. However, other assets such as family homes, cars, boats and art would be exempt from the CGT. Tax Working Group Chairman Cullen claimed that the capital gains tax would raise NZ$8.3 billion over the next five years.[6][7]

Finance Minister Grant Robertson and Revenue Minister Stuart Nash welcomed the Tax Working Group's recommendations. Robertson said that the Labour Party would seek to build a consensus with its coalition partners New Zealand First and the Greens. Nash also praised the Tax Working Group for identifying weaknesses in the country's taxation system and said that the report presented the government with options on tackling it. Government spokespersons also said that they would study the report and inform the public if they were introducing a capital gains tax by April 2019.[6]

Opposition Leader Simon Bridges of the National Party criticized the proposed capital gains tax as an assault on the "Kiwi way of life" and vowed to fight it every step of the way. Similarly, National's Finance Spokesperson Amy Adams claimed that the Tax Working Group was proposing a massive tax grab that would hurt the New Zealand economy and taxpayers.[8] Businesses, landlords, and farmers have objected to the proposed tax while trade unions including the New Zealand Council of Trade Unions and environmental groups have expressed support for the proposed CGT.[9][10]

On 17 April, the Coalition government announced that it would not be introducing a capital gains tax. Members of the ruling coalition were unable to reach a consensus on the issue. Opposition Leader Bridges criticized the capital gains tax debate for wasting taxpayer funds and weakening the New Zealand economy by undermining business confidence.[11][12][13][14]

Notes and references
  1. Walters, Laura; Kirk, Stacey (23 November 2017). "Sir Michael Cullen to head tax working group, GST changes possible". Stuff.co.nz. Retrieved 22 December 2017.
  2. "Tax Working Group members announced". New Zealand Government. Scoop. 20 December 2017. Retrieved 22 December 2017.
  3. "Tax Working Group homepage". Tax Working Group. Retrieved 22 December 2017.
  4. "Terms of Reference". Tax Working Group. Retrieved 22 December 2017.
  5. Jones, Nicholas (20 October 2017). "Jacinda Ardern confirms new government will dump tax cuts". The New Zealand Herald. Retrieved 22 December 2017.
  6. Walls, Jason (21 February 2019). "Tax Working Group recommends capital gains tax: what it means for you". The New Zealand Herald. Retrieved 22 February 2019.
  7. "Capital gains tax recommendations: What you need to know". Radio New Zealand. 21 February 2019. Retrieved 22 February 2019.
  8. "Capital gains tax recommendations: Opposition comes out swinging". Radio New Zealand. 21 February 2019. Retrieved 22 February 2019.
  9. Carrick, Gia (21 February 2019). "Complex capital gains tax 'a lot of cost for no gain'". Radio New Zealand. Retrieved 22 February 2019.
  10. Greenhill, Marc (21 February 2019). "Small business owners rail against capital gains tax proposal". Stuff.co.nz. Retrieved 22 February 2019.
  11. "Live: Government rejects a capital gains tax". Stuff.co.nz. 17 April 2019. Retrieved 17 April 2019.
  12. Walls, Jason (17 April 2019). "Government kills off capital gains tax, won't happen on Jacinda Ardern's watch". The New Zealand Herald. Retrieved 17 April 2019.
  13. "'No mandate' for capital gains tax - PM". Radio New Zealand. 17 April 2019. Retrieved 17 April 2019.
  14. Small, Zane (17 April 2019). "Government rules out capital gains tax". Newshub. Retrieved 17 April 2019.
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