In a presentation in Wanganui on September 22nd the Labour Finance spokesperson David Cunliffe spoke about the party’s intended tax policies. David Cunliffe conceded that new taxes were not typically popular with voters, but the Party’s proposals had so far been met with a better reception than anticipated.

David Cunliffe reaffirmed New Zealand’s need for a capital gains tax, saying that New Zealand was one of only three OECD member states to not have the tax. The Minister explained that the new tax would encourage people to invest in productive assets and not just in property. Further, over half of the raised tax revenues would be used to fund tax measures aimed at boosting New Zealand’s economic welfare and productivity. David Cunliffe said that if the capital gains tax is approved, it would allow the government to instate a tax credit system for companies conducting research and development activities. Further, the Party would cut GST from fresh fruits and vegetables, and cut taxes on the first NZD 5000 of personal incomes.

Approximately 9 percent of the funds raised from the Capital gains tax would go directly to job creation. The remaining funds are all earmarked for repayment of government debts.

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On July 24th HorizonPoll published the results of the first nation spanning survey to gauge the opinions of taxpayers on capital gains taxes, since the Labour Party announced its intention to implement the levy earlier this month.

According to information in the published results, nearly 41 percent of New Zealanders support the Labour Party’s proposal for a capital gains tax, and just over 34 percent are opposed to the system. Approximately 18 percent of respondents were still undecided, and 7 percent said that they did not know the best course of action.

The survey showed that high income earners were largely against the tax, with opposition increasing with rising income brackets. Nearly 45 percent of New Zealanders earning less than NZD 20 000 per year were in support of the tax, and 44.6 percent of those earning NZD 20 001 to NZD 30 000 also approved of the idea. However, only 36.6 percent of those earning between NZD 30 001 and NZD 50 000 supported the proposed tax.

Approximately 34 percent of earners who received between NZD 100 001 and NZD 150 000, and 56.5 percent of respondents in the same earnings range were opposed to the tax. The highest salaried taxpayers, earning more than NZD 200 000, were the largest opposition to the tax, with 65.2 percent explicitly objecting to it, and none voicing support.

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For the last week the New Zealand Labour Party has given strong indication that it will use a capital gains tax as a center point in its general election campaign. An official announcement on the matter is expected on Thursday, but analysts expect the proposed tax to be levied on investment properties, and to be charged at 15 percent of the sale profit.

Since the tax was first hinted at, over the weekend, it has raised significant debates, dividing politicians and industry groups firmly between support and opposition. However, the proponents have already received big name backing, with the Inland Revenue Department, the New Zealand Treasury, the International Monetary Fund, the Organization of Economic Cooperation and Development all saying that the country’s tax base is too narrow, and a capital gains tax would improve the situation.

John Key has responded to the supporters, saying, “…I think we’ve got a tax system that most countries in the world would want to have.” He claimed that New Zealand does not need new taxes, but a greater number of taxpayers, and that the best means to achieve this was to encourage economic growth. The Prime Minister said that a capital gains tax would only serve to stifle New Zealand economic expansion, and discourage investments.

Phil Goff, leader of the Labour Party said that he will continue to remain tight-lipped about the tax until Thursday, but is happy that the idea has spared such wide debate across New Zealand.

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Even though the Labour party’s intention to pursue the tax was only revealed on June 6th, there has already been a rising swell of debate in support and opposition of the idea.

If the Labour Party wins the election, it will instate a new capital gains tax. In an effort to protect the country from slow downs to the home-buyers market, the tax will only be levied on second homes and investment properties.

The tax is likely to be levied at 15 percent on the profits made from selling an investment property. Previous estimates by the tax Working Group have indicated that such a tax could raise nearly NZD 4.5 billion per year. The Labour Party is likely to use the revenues to pay for a round of low- and middle-income earner tax cuts, a removal of GST on fruits and vegetables, and exempting the first NZD 5000 of incomes earned from tax liabilities. Some analysts believe that the changes will be complemented with a round of tax rate increases for high-income earners.

The idea was met with almost immediate praise from the Council of Trade Unions (CTU), with Peter Conway, CTU Secretary, saying that “the time has come” for New Zealand to have a capital gains tax. However, he also warned that the tax would not be a “miracle cure” that would address the country’s economic problems, but would help balance the country’s fiscal woes. The current ruling National Party also promptly voiced its disapproval for the capital gains tax idea.

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According to the latest Economic Survey of New Zealand released by the Organization of Economic Cooperation and Development (OECD) on April 27th, the government needs to instate a comprehensive capital gains tax into the tax system, in order to address inefficiencies and imbalances in the economy.

The report suggested that for the last ten years New Zealanders have relied on easily accessible credit to invest in the housing sector, as the tax system contained strong bias to property as an investment vehicle. This behavior has left the country’s capital market “shallow”, spurning an even greater number of people to further invest in real estate, due to a lack of other options. Such behavior has resulted in under-investment in the traded-goods sector, and structural shortcomings throughout the economy. Currently New Zealand is facing an overvalued currency, high external debts and unbalanced growth. In combination, the factors have combined to stall the country’s economic growth and put it in a risky financial situation.

In order to correct the over-reliance on property investment, the OECD has called for the government to instate a comprehensive capital gains tax on profits arising from the sale of any properties other than the primary home. Such a decision should significantly improve the investment landscape without damaging the opportunity to own a house. As an alternative the government was recommended to examine the feasibility of instating a system of increased land and property taxes.

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On February 9th the accounting software firm MYOB Technology released the quarterly MYOB Business Monitor report, which canvases opinions of New Zealand businesses on taxation and the economy. The newly published edition of the report gauges local businesses’ views on potential election year political campaign promises.

Overwhelmingly, the report showed that business owners would support a political party which campaigned on the promise of reducing tax compliance costs for businesses, or introducing measures to ease filing burdens. Approximately 74 percent of survey participants claimed that they would support a political party which proposed to simplify provisional tax rules, specifically in regards to making it easier for businesses to “accurately determine and meet their tax obligation”. Over 61 percent of respondents stated that they are in favor of policies which would grant tax-credits to businesses which electronically file their tax returns. Waiving late-payments fees for startups was also a relatively popular option, with 58 percent of survey takers revealing that they are in favor of the policy. Summarizing the businesses’ opinions, Julian Smith, General Manager of MYOB New Zealand, said, “…the policies the New Zealand business community would support are those that would make it easier to do business in this country, invest in innovation, and provide greater employment opportunities.”

Nearly 42 percent of surveyed business owners stated that would vote for a political party that campaigned on a platform of a common economic zone with Australia, along with a shared currency. The idea was widely supported within the professional services sector, although won little praise from the rural sector, or local retailers and or business owners in the hospitality industry.

In a media statement issued by MYOB, Julain Smith revealed the least popular tax policy that could potentially be proposed during the election, saying, “…all parties would do well to steer clear of a capital gains tax. This would be a very unpopular policy, with 65% of business owners promising to vote against the party that has a capital gains tax as an election platform.”

Summarizing the survey results, Julian Smith said that political parties should scrutinize their tax and economic policies closely, as tax cuts alone might not be enough to win voters’ favor. He continued to say, “…what our research has highlighted is that Kiwi business owners are looking for a comprehensive mix of stimulus, cost reduction, and investment in growth and innovation.”

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The New Zealand Green Party co-leader Dr Russel Norman gave the annual State of the Planet speech on January 30th, in preparation for this year’s upcoming general election campaigns. The speech centered on the Green Party’s policy outlooks and election promises for the year, which deviated from the expected climate based policy proposals to arguments concentrated on the future of the economy.

Dr Russel Norman claimed that the Green party’s new focus is best described as “Smart Green economics”, and is consistent with elements of Keynesian economics and elements of free market economics, within a framework of finite resources. As the first major proposal of the Party’s new outlook, Dr Norman Russell called for a new capital gains tax to be instated in New Zealand. The Green Party leader said that a capital gains tax was the best way for the government to raise large amounts of tax revenues without harming the economy. He claimed that a capital gains tax should be instated on all properties excluding the family home, which would remove incentives for property investment speculation. It is thought that such a move would lower prices of house ownership in New Zealand, and make great strides in reducing government debt.

In the speech Dr Russel Norman also criticized Prime Minister John Key’s speech, claiming that the suggestion of selling of state assets was financially irresponsible. He claimed that it would not reap any benefits and would only result in heavy debts for future generations of New Zealanders.

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With the countries recent focus on the tax system and possible reforms, John Key initiated his speech by disclosing the Government’s plans for the taxation landscape. He indicated that investigations are currently being held around the feasibility of implementing a raised Goods and Service Tax (GST) rate of up to 15 percent, from the current 12.5 percent. It was revealed that there could be a lowering at all levels of personal tax rates, with particular emphasis on top-earners. The Tax Working Group recommended risk-free return rate method for property investment, land taxes, and capital gains tax have all been rejected by the Government. There is a possibility that Working for Families and superannuation will see a rise in payments, pending decision on the GST rate. The complete tax package, which John Key described as significant, will be detailed in May, alongside the national budget announcement.

Within his speech, John Key revealed the Government’s revised view on education, promising a ‘shake up” for the tertiary system, and a shift in emphasis in secondary schools towards trade and practical skills. He also promised to increase support for early-childhood education. Changes to resource laws were announced that will see mining on conservation land, with funds from mining licenses funneled back into conservation care. Higher degrees of training and regulation were also promised for Sickness and Domestic Purposes Beneficiaries.

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After month of waiting, the New Zealand Government and people can see the results of the Tax Working Group’s analysis of the country’s taxation landscape. The results are less than flattering and thirteen primary changes have been proposed to adress the situation.

According to the Tax Working Group’s report New Zealand‘s tax system is inappropriate and relies too heavily on the very taxes that are most harming to economic growth, specifically personal and corporate income taxes. The current system also encourages business entities to ignore growth decisions in favor of lowering their tax liability. In regards to personal income tax, the current situation sees the tax burden borne by the PAYE payer, as avenues exist for the wealthy to divert their tax liabilities. The report also brings into question the sustainability of the existing taxation landscape, as with increasing international competition, rising cost of public debt servicing and changing demographics shifting an increasing tax burden placed on a decreasing portion of the population.

In order to address the ailing tax system the Tax Working Group’s report recommends a total reform of taxes, led by thirteen primary changes.

According to the report the top personal and corporate income rates, along with the trust tax rate should be aligned, to improve the overall integrity of the system. If the fiscal situation were to make this unfeasible, the minimum changes would include alignment of trust rates, personal tax rates and the top rate for Portfolio Investment Entities (PIEs).

The report also recommends that all steps be taken to keep the corporate income tax rate internationally competitive. Although the Government would be required to balance the benefits of an aligned system versus the potential increases in business from international entities. The Group has also suggested that the current imputation credit system be retained, though the need for revision might arise if the imputation system changes in Australia.

As part of the alignment strategy the current 33 and 38 percent tax rates should be reduced, and all other rates should be lowered whenever possible. The changes should be instated concurrently to a rise in the Goods and Service Tax (GST) rate from the current 12.5 percent to 15 percent. The GST system should continue to be applied with no exemptions.

The New Zealand tax base also needs to be broadened, according to the report. Biases need to be eliminated, and increases in efficiency and sustainability need to be sought, especially if top tax rate alignment is pursued. The easiest method of base broadening is to instate a Comprehensive Capital Gains Tax (CGT), though there is no unanimous decision within the Group itself regarding the potential efficiency of such a system. Investigation should also be led into identifying areas in which any forms of income are under-taxed. Further, a low-rate land tax should be instated.

Finally, the report recommends that the 20 percent depreciation loading on new plant and equipment be removed. The tax depreciation of buildings should also be removed and the safe harbor threshold be lowered to 60 percent.

New Zealand Prime Minister John Key, and Peter Dunne, Revenue Minister, have already commented on the report promising that the Government will carefully consider the results of the report.

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The Taskforce’s paper consists of six groups of recommendations for New Zealand’s capital markets. According to the report, if implemented, the ideas will improve the contribution of capital markets to the country’s economic growth and bring significant fiscal benefits to New Zealanders.

The CMDT has proposed that regulations be established to improve financial advisory services and information available to investors, along with improving investment literacy. Suggestions include replacing investment statements and prospectuses with more standardized disclosure documents. Warnings should be applied to high-risk and complex investments products.

The paper identifies several perceived gaps in the capital market, and aims to remedy them. Key recommendations include partial listing of central and local-government companies, government intervention in developing the local annuities market and establishing New Zealand as agricultural capital market hub.

According to the CMDT, the Reserve Bank and the New Zealand Stock Exchange should collaborate to improve the country’s settlement and clearing infrastructure. Also, tax biases between different savings and investments need to be eliminated through options such as : the risk-free return method, denial of depreciation deductions on buildings, a general capital gains tax, or an asset specific capital gains tax.

The full CMDT report can be viewed on the Ministry of Economic Development website.

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