Tackling current imbalances in the New Zealand economy will not be a short-term task, and will require “relentless” long-term focus and policy reform. The analysis and the Government’s future policy outlook was released on August 11th, in a speech to the New Zealand Council for Infrastructure Development, by Bill English, Finance Minister of New Zealand.

The international credit environment is too constrained for New Zealand to readily address economic imbalances, and the recovery will be based on stable growth of earnings sectors, like exports. Attention also needs to be paid by individuals, businesses and the Government to repaying the country’s overwhelming levels of debt.

In an attempt to achieve sustainable economic growth the Government’s policy decisions will revolve around six key factors: strengthening the tax system, providing more efficient public services, reforming economic regulations, raising national education and skill levels, increasing business innovation, and investing in productive infrastructure projects. According to Bill English, for the last 18 months the Government has been working to prepare new policies in line with the six new focuses, which are scheduled to be released in September.

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On July 2nd Bill English, Finance Minister of New Zealand, praised the country’s planned corporate tax rate decrease. The statement came as a response to the Australian Government’s announcement that its national corporate tax rate will not be reduced below 29 percent until fiscal conditions permit.
According to Bill English, the New Zealand 28 percent tax rate, combined with previously announced Budget measures will aid national businesses with the incentives to invest and increase exports. The Minister explained that New Zealand’s relative advantage over Australia will allow the country to draw greater international investments. He elaborated further, saying that New Zealand’s corporate tax rates will be 2 percent lower than Australia’s for at least two years.

Bill English continued to say that New Zealand has a unique tax package, which has allowed significant tax rate decreases in an international environment of tax rate increases. The Government will also “tilt” the economy away from unsustainable increases in spending, continued borrowing, while increasing investing in productive elements of the economy.

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On June 5th Cameron Brewer, CEO of the Newmarket Business Association, issued a statement supporting Ann Lockhart, CEO of the Queenstown Chamber of Commerce, who on the same day called for a revised GST-exemption program to be instituted for foreign visitors. Under the proposal, overseas nationals could present their purchase invoices at a New Zealand international airport and be granted an exemption on any GST paid on purchases throughout their visit.

The comments were sparked by a speech given by Bill English, Finance Minister of New Zealand, in which he refuted the possibility of a GST-exemption system being created in the near future. Bill English stated that he is not in favor of contributing complications to the country’s current “clean” GST system. He added further opinion, saying he does not believe that tourists would not cease visiting New Zealand simply because of a lack of GST refunds.

According to Ann Lockhart, the refunds would not be aimed at attracting new tourist to the country, but increasing the amount of spending that visiting tourist do, during their visits. Cameron Brewer’s statement claimed that even if only 5 percent of tourist utilized the scheme, an additional NZD 30 million extra spending would occur as a direct result. Cameron Brewer added a note of consolation, saying that despite Bill English’s words, John Key, Prime Minister of New Zealand and national Tourism Minister, is interested in perusing the matter further.

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On May 7th the New Zealand Government issued a statement revealing a 2.4 percent fall in tax revenues, compared to earlier Half-Year Update in December. The Government has revealed that it now expects tax revenues to be below previous expectations for the entirety of 2010, and perhaps also 2011. According to the statement the lowered tax revenues are due to decreased corporate income collections, and decreased provisional tax payments from individuals and source deductions. Commenting on the new results, Bill English, Finance Minister of New Zealand, said “Just two weeks out from the Budget, it underscores the brittle fiscal position faced by the Government and how finely balanced the situation is.”

According to the New Zealand Government, tax collections for the nine months reached NZD 530 million. Although, these take into account the NZD 400 million made in one-off gains from the Government’s legal action against four New Zealand banks. Provisional tax payments were NZD 309 million lower than expected. Company taxes and PAYE deductions were down NZD 349 million and NZD 537 million respectively. Although Goods and Service tax revenue is reported to have increased by NZD 314 million above forecast.

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A document has recently been leaked to the media containing a number of proposed alcohol legislation reforms. Key among the changes is a 50 percent increase in alcohol excise duties. The newest report comes as an extension of discussions conducted in 2009, which recommended the current 50 percent increase, regular reviews of excise taxes, and transferring all revenues collected to alcohol-harm-prevention organizations. The report also recommended changes to allowable liquor sale hours, and minimum age of sale requirements.

The alleged report Review of the Regulatory Framework for the Sale and Supply of Liquor is allegedly an early version of a Law Commission document due to be released on March 27th. Bill English, New Zealand Finance Minister, has confirmed that the report is due and is expected to contain excise tax recommendations, but refused to comment on whether current speculations are correct.

Despite the unconfirmed nature of the legislative proposals, numerous New Zealand political figures have already commented on the report. Lianne Dalziel, the Labour Party’s Justice Spokesperson, said, “New Zealand will not develop a culture around alcohol that works for the benefit of society if we are not prepared to be politically courageous.”

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On March 22nd at a speech given at the Wellington Chamber of Commerce, Bill English, New Zealand Finance Minister, revealed that a further NZD 1.8 billion worth of public spending will be cut by the Government, in an effort to eradicate “lower quality government spending” and improve the national fiscal situation. The new cuts are slated to be executed in addition to the NZD 2 billion of spending decreases announced earlier.

The spending reductions are scheduled to occur throughout a four year time period and coincide with the introduction of a new Government-spending limit. Bill English indicated that some of the money that would be directed away from “low quality” spending would be transferred to “high priority” sectors. Indication was given that the health and education sector would see immediate benefits from the decision. Any unused funds would be utilized to lower New Zealand’s budget deficits in the next four years.

Indicating that similar spending cuts could occur in the foreseeable future, Bill English said, “…I think there will be a continuing sorting out of the public sector… there was a reduction of about 1500 [public sector] jobs in the last 12 months and I expect that process is likely to continue.” He also revealed that some public services could even be eradicated completely, though did not mention specific examples.
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On April 9th the New Zealand Government released its Financial Statements for the eight months ended February 28th 2010. The new statements show the Government’s operating deficit for the period to be NZD 4.49 billion, 11.2 percent below the 2009 Half Year Economic and Fiscal Update. The difference was attributed to lowered Government spending and a once-off payment to the Government from its structured financing legal settlements. An unexpected surge in retail sales caused also Goods and Service Tax (GST) collections to reach NZD 389 million, over 5.3 percent higher than projected. The positive results were partially offset by lowered Core Crown Tax Revenues which were reported to be NZD 32.6 billion, approximately 361 million below projections. Additionally, the Government reported Core Crown Revenues of only NZD 36.2 billion, nearly NZD 348 less than expected.

Bill English, New Zealand Finance Minister, applauded the overall results and the Government’s ongoing efforts to pursue positive fiscal results. The Minister said that the National-led Government has made it clear that the large increase seen in public spending over the previous five years were unsustainable and imposed too great an effort on tax payers. He continued on to say that the latest results are a product of the Government’s successful cutting of over NZD 2 billion worth of low quality spending. In the face of several years of upcoming deficits, the upcoming Budget release will mandate similar cutbacks in order to minimize the effects of future shortfalls. Indicating the possibility of similarly positive yearly fiscal results in the future, Bill English said, “We are working hard to get back into surplus and get the Government’s debt under control.”

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In a court action that will be closely monitored by both the medical profession and other high-cost professionals the IRD is seeking to claim that two Christchurch based orthopedic surgeons were using company and trust structures to pay themselves less than the typical rate for their profession. The IRD initiated court action against the two doctora, and the High Court found against the department in April.

Due to the wide spreading implications of any decision made in the proceedings great attention is being paid to the case, with some speculation arising that it could lead to Government legislative action. Bill English, New Zealand Finance Minister, has indicated that he is concerned of possible precedent stemming from the Courts ruling against the IRD, which would see a sizeable shrink to the Government’s tax stake. Robin Oliver, IRD Director of Tax Policy, has indicated to the Government Finance and Expenditure Select Committee that a ruling against the IRD would see a significant drop in tax revenues, though he also admitted that his department had not yet been able to quantify the potential impact.

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Amid a global financial crisis and worldwide climate of tax changes, the New Zealand Government has created two research groups with the common goal of improving the country’s financial standing. The 2025 Taskforce was charged with forming a framework proposal to close the income gap between Australia and New Zealand. It’s report was released on November 30th.

The Tax Working Group was instate to address New Zealand’s key medium-term taxation challenges. As a precursor to its final report, the group held a conference on December 1st, to discussing. The final report submission is expected in early 2010. Both groups have advised the Government to enact radical and sweeping changes to New Zealand’s tax system.

The 2025 Taskforce’s framework for economic reform includes lowering top-end personal and corporate taxation to between 20% and 25% and not instating a capital gains tax. It extends to abolishing certain universal benefits, Kiwisaver subsidies and the New Zealand Superannuation fund, along with selling state assets like TVNZ, Genesis Energy, Mighty River Power and Meridian Energy. The ideas were refused by John Key, New Zealand Prime Minister, the day before the reports release. Bill English, New Zealand Finance Minister, stated on the day following the report that there will be no “big bang” changes to the next New Zealand Budget.

Although the Tax Working Group has not officially stated their recommendations to the New Zealand Government, comments to the media and released summary papers give an indication of think tank’s intentions. Bob Buckle, Chairman of the Tax Working group, recently provided a summary, saying “We’ve looked at capital gains tax, we’ve looked at more targeted schemes for dealing with investment in property. We have looked at the pros and cons of lifting the GST rate and at some of the ways in which we treat depreciation on buildings”, in the same interview he revealed that the group had investigated land taxes too”.

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As it stands at this moment in time, the proposed retail-banking guarantee scheme does not extend to funds attained from international wholesale markets. According to Michael Cullen the government has been looking at the possibility of making this a reality, although since the New Zealand banking system was not undergoing any sort of crisis at the moment, they have to time to properly create and implement appropriate measures.

Concerns arise with the proposed scheme whereby it would seem that it would give virtual monetary guarantees to offshore stakeholders, effectively transferring the benefit out of New Zealand. While he acknowledged the difficulties, Michael Cullen also did make the point that there is a necessity for the New Zealand government to implement some measures to protect the New Zealand financial sector.

Jeanette Fitzsimons, leader of the Green Party, confirmed her party’s support of the scheme the following. She also claimed to want to see a higher collaboration between parties within Parliament in the support of this scheme. Though she did mirror the concerns of Michael Cullen, with the possibility of such a large benefit being exercised exclusively by overseas bodies.

National Party leader, John Key also supports the proposal, although with much less trepidation and more enthusiasm than Jeanette Fitzsimons. His reasoning, according to statements issued on the morning of the 20th of October, being that countries like Australia who are already implementing similar systems will find it proportionately easier to access money.