In a media statement on February 24th New Zealand Prime Minister John Key revealed that later in the day he will begin talks with chief executives from New Zealand’s largest companies, in the hopes of working on a cooperative assistance package for the companies’ workers which were affected by the quake. The Prime Minister expects that the assistance and wage subsidy packages that might be needed after the earthquake will be different to those offered after the September 2010 earthquake, as this time many large businesses were disrupted alongside numerous small enterprises. It is expected that the assistance package will be finalized by Monday.

After the media statement the Prime Minister was asked about the possibility of an earthquake levy being imposed to help with the financial burden of recovering from the earthquake, similar to the system passed through the Australian House of Representatives on February 24th. The Prime Minister replied, saying that New Zealand effectively already has a tax to raise funds for disasters, in the form of the Earthquake Commission. He went on to say that while he prefers not to pursue a disaster tax, he will if it is deemed necessary.

In addition, the Inland Revenue Department is still advising taxpayers that they are eligible for several relief programs if they were adversely affected by the earthquake. According to the IRD earthquake victims are eligible for a waive in their late interest payments, and an earthquake support subsidy. The IRD can also fast track any GST refunds that are being expected by business owners in the area.

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On February 16th the Australian Prime Minister Julia Gillard and the New Zealand Prime Minister John Key signed a new Investment Protocol between the two countries, which updates the bilateral Closer Economic Relations (CER) trade agreement held by Australia and New Zealand. The newly signed agreement will align the CER with contemporary free trade agreements, and will cut several investment restrictions between the countries.

The protocol raises the amount that a New Zealander can invest across the Tasman before requiring a screening and approval by the Australia’s Foreign Investment Review Board (FIRB). Additionally, the signed agreement sets out that a New Zealand investor must be treated as well as a local investor when the investment is being appraised. Likewise, the same considerations and restrictions will apply to Australian investors coming to New Zealand.

Under the new protocol New Zealanders investing in Australia will be subject to a AUD 1.005 billion threshold, with investments exceeding the amount being required to seek approval from the FIRB for the venture. Australians wishing to invest in New Zealand will be subject to a NZD 477 million cap. The levels are being raised from AUD 231 million, and NZD 100 million respectively.

John key made a media statement shortly after signing of the agreement, saying that there should be no ill effects from the protocol, and New Zealand will not experience a loss of asset control to Australian investors. He added that if National wins the general elections and carries out its plan to sell off state assets, the new agreement will not results in disproportionately larger number of Australian buyers.

The new protocol will be enacted within 30 days of both countries completing the necessary legal ratification measures. While a date has not yet been forecasted, both governments expect this to occur within 2011.

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Over January 25th and January 26th both Prime Minister John Key and Labour Party leader Phil Goff kicked off the election year by giving their own respective speeches announcing their views on the New Zealand economy and the country’s tax future.

On January 25th Phil Goff gave his State of the Nation speech, in which he revealed the party’s primary taxation promises for the 2011 general elections. The most ambitious proposal was to create a “tax free zone” on the first NZD 5000 of personal income earned annually by all taxpayers. He added that the party also intended to remove all GST from fruits and vegetables. Phill Goff went on to say that, if elected, Labour would set up an Anti-Avoidance Tax Taskforce to deal with closing existing tax loopholes surrounding property investment and clamping down on tax evasion. The Labour Party leader also indicated that top personal income taxes would be raised, although did not specify the potential rate.

In his responses, John Key was critical of Phil Goff’s proposal, describing the ideas as being in “fantasyland”. The Prime Minister stated that the concept of a “tax free zone” is fiscally irresponsible in the current economic environment and would necessitate extra government borrowing. He added that attempting to close tax loopholes would be a wasteful endeavor, as sophisticated investors could easily circumvent any changes put in place. According to National Party estimates, the Labour Party would require an additional NZD 1.1 billion per year to implement their plan. According to Revenue Minister Peter Dunne, Labour would need to raise the top personal tax rate to 47 percent, in order to fully fund the proposed “tax free zone”. He added, saying, “I don’t think New Zealanders will find ramping up the top tax rate by half acceptable.”

In his own speech the Prime Minister did not propose any tax changes, but suggested that the National Party would consider selling off state-assets, in order to reduce the national deficit. He said that the Government could sell up to 49 percent of its investment into Mighty River Power, Meridian Energy, Genesis and Solid Energy. The move could raise up to NZD 10 billion. John Key assured New Zealanders that the sell-off would not be detrimental to New Zealand, as the Government would retain 50 percent voting share in all the companies, and preference would be given to New Zealand investors while stocks are sold.

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On May 17th John Key, Prime Minister of New Zealand, appeared in a television interview and made it clear that the upcoming budget will feature cuts to personal taxes across all levels, but with special emphasis on top-marginal rates. John Key’s comments led economist to believe that the anticipated increase in Goods and Service Tax (GST) will also be announced within the Budget, to offset the decreased tax personal tax revenues.

When questioned on the fairness of increased tax cuts for high earners, John Key claimed that the move was vital for the future economic situation of the country. According to the Prime Minister, it is important that efforts are made to retain the highest skilled workers in the nation, both for their large tax contribution and provided services. He summarized the intentions of the change, saying, “Part of what you are going to see on Thursday is a deliberate attempt to get people to say here and contribute to the economy.”

Overall, John Key stated that the Budget will be aimed at improving the economic growth of the entire nation. He said that it will also deliver increased benefits, opportunities and welfare for everyone in the economy.

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Phil Goff, Labour Party leader, announced on February 22nd that a two week protest bus-tour will be launched on February 28th to fight the possibility of a the GST rate being raised to 15 percent. He claimed that the tour’s aim was to visit New Zealand communities and “to show them just how unfair John Key’s plans to hike GST are.” The protest plan also includes several visits to local community groups like Grey Power, Citizen’s Advice Bureau, and any local budgeting services.

While introducing his protest-bus idea, Phil Goff claimed that the National Party had not campaigned with the promise that it would raise GST, and the “…Labour [Party] is going to campaign against it.” He went on to say that a GST increase is unfair and would hurt middle and low income earners across the country, while not delivering for families.

Opposition party members have already commented on the proposed bus tour, noting that while Phil Goff is protesting the GST rise he has not yet stated that his party would lower it if it came to power in the next election. New Zealand Prime Minister has stated that he is not concerned with the tour, and believes that most New Zealanders are reserving their opinions on the increase until they see the entire tax reform package in May.

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Speaking in a television interview on February 14th, John Key disclosed that the Government is investigating the possibility of creating infrastructure to facilitate and encourage the registration and administration of international pension funds within the country. The concept was suggested and detailed to the Prime Minister personally by the Capital Markets Taskforce in December 2009.

The intention is currently only in early planning stages, though John Key has said that “we are keen to take the next step.” If current projections prove to be correct, the institution of such a financial center could create 3000 to 5000 middle and back office administration jobs. The fund administrators would also be subjected to taxation in New Zealand. As under the scheme New Zealand would only provide administrative support, the pension funds themselves would not be subjected to taxes within the country. According to the Capital Markets Taskforce’s report several “technical” changes would need to be carried out in New Zealand in order to facilitate the financial hub scheme.

According to John Key, a similar system has been implemented in Ireland with success. He described it as “cost effective, but also predictable.” Australia is investigating similar options, though the Prime Minister said that this is not worrying, as New Zealand is a more attractive destination and Australia would be more focused on attracting the funds themselves as to opposed to their administration duties.

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In a press release issued on February 12th the NZBCSD has stated that they are in full support of equating top personal, corporate and trust tax rates, along with lowering across the board personal rates and broadening the tax base, while raising taxes on consumption, as proposed by Prime Minister John Key in his first statement to Parliament on February 9th. The NZBXSD claims that this would lead to a fairer and more sustainable tax system, eventually expanding the economy and drawing in greater numbers of international investors.

The NZBCSD proposed a similar set of changes to the Government after the Business Budget Summit, held on November 1st 2007, though the advice was not heeded. Peter Neilson, Business Council Chief Executive, explaining the Government’s dismissal of the ideas said, “It seems we are preoccupied as a nation with who might win or lose on the first day of reform.” He continued on to say that GST increases were a primary example of this attitude, with many concerned about the initial price increase while ignoring the long-term benefits. He commented further, saying that as long as tax changes are wide reaching and low income individuals receive some support for any first day price increase, a tax reform package should be acceptable to most 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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At his first press conference for 2010 John Key summarized the Government’s goals for the new year, and said that “Shoring up the tax base and ultimately lowering personal tax rates are important”. Though he provide no further details, John Key said that further explanations on the Government’s economic position will be provided on February 9th, at the opening of Parliament.

Ultimately, no further decision on personal taxation can be expected before discussion on the findings of the Tax Working Group, a government sponsored collective charged with investigating the country’s taxation future. According to the Prime Minister, the group’s final report can be expected within weeks. He went on to say that it was obvious from preliminary releases that the Tax Working Group had identified numerous shortcomings within New Zealand’s taxation landscape, and would address them in its final report.

John Key also said that he would remain “vigilant” on the issue of corporate income tax. Continuing to explain New Zealand’s fiscal situation, the Prime Minister said “…it is my expectation that the major theme for 2010, for the Government, will be improving New Zealand’s economic growth. The Government remains very committed to strengthening our economy and lifting wages, we will also remain very focused on ensuring that we deliver value for money from the state sector.”

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