Tax system fairness, balance under scrutiny

Is New Zealand too lightly taxed?  Does the tax system favour speculation over the productive economy?  Is it fair to low-income earners? Should tax be used to drive behaviour change? 

These and other questions are currently being pondered by a government-appointed Tax Working Group, chaired by former Finance Minister Sir Michael Cullen.

The Working Group is looking at how to improve the structure, fairness and balance of the tax system.  Although it acknowledges the system is simple and efficient the current Government isn’t convinced that it’s fair and it’s concerned that asset owners and speculators may not be paying their fair share of tax.  

Although it’s implicit in the Working Group’s terms of reference that any proposals should be fiscally neutral, Sir Michael has publicly said he thinks New Zealand is relatively lightly taxed and higher government spending and higher taxes may be desirable or necessary. He has also expressed interest in moving away from a relatively neutral tax system to one that is more overt about seeking to change behaviour.

The deadline for submissions is 30 April and to assist submitters, a background paper identifies key challenges. 

A Federated Farmers member survey to seek farmers’ views drew nearly 1,400 responses, which is indicative of the interest farmers have in this process.

Based on the survey results most farmers seem reasonably content with the current tax system, in particular the broad-based low-rate nature which has enabled a lot of revenue to be raised without high rates having to be imposed.  There is little appetite for change and certainly not change in the direction that could be in the offing.

One of these possible changes is a capital gains tax, albeit one that excludes the family home.  Farmers aren’t keen on this tax mainly because their land is their key asset and the capital gain from selling is often the only way a decent return is made from decades of farming. 

Our survey indicated opposition to a CGT might lessen if it were implemented through a bright-line test where capital gains were only taxed within say five years of purchase.
The Working Group is also considering a land tax, excluding the land under the family home.  This is even more toxic for farmers who already pay hefty property value rates to fund local government.  

Environmental taxation is going to be an emphasis for the Working Group.  Farmers tend to be supportive of tax being used as a carrot, such as through deductions for environmental expenditure like fencing and riparian planting, but most strongly oppose use of taxes as a stick on key inputs like water, fertiliser and fuel.

Most farmers support GST having as few exemptions as possible and they don’t want the complexity and arbitrary nature of exemptions on types food, for example. There are plenty of other ways to support low income earners or encourage healthy eating.

Submissions close 30 April. The Tax Working Group will provide an interim report to Ministers by September and a final report by February 2019.  Any changes arising from its work will not come into force until the 2021 tax year, after the 2020 election.

Regardless of what you think about tax be sure to have your say.
Nick Clark - Federated Farmers, Manager General Policy