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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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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According to statements made by John Key, New Zealand Prime Minister, and reports by the New Zealand Reserve Bank, the economy will continue to recover over the second half of 2009. The Prime Minister said that the New Zealand GDP in the fourth quarter will be “quite good” and that the third quarter figure “won’t be bad either”.

The recovering economic figures are due highly to the recovery of the Australian economy, destination for approximately one quarter of New Zealand’s exports. This prompted Alan Bollard, Reserve Bank Governor, to issue a waring that while New Zealand and Australia and New Zealand are closely related, they are not the same economy and act differently. According to him, New Zealand is “slower and more vulnerable”. He continued to say that “a difference financial markets do not appear to appreciate”. He wared that investors seem to be treating New Zealand and Australia the same, and that while looking at the current recovery, this was a mistake.

Several economic indicators are serving to confirm the recovery sentiment. House prices have risen 7.9 percent since January, business confidence is at a 10-year high. Consumer spending and confidence reports are also positive. The Reserve Bank statements give indicator that their policy of fiscal stimulus will not cease until mid-2010.

While no official indication has been given by credit rating agency Standard & Poor’s as to the timing or result of their credit rating decision, Prime Minister John Key has made optimistic statements both to the possible outcome and the time until its announcements.

Three Standard & Poor’s executives were in a meeting with John Key, in an opportunity for him to elaborate on New Zealand’s future economic plans. He said in a statement after the meeting, that the executives understand his plans, although he has no indication in regards to their credit rating decision.

Prime Minister John Key has come under attack from opposition leaders recently for apparently paying too much head to credit rating agencies in the writing of the budget. Labour leader Phil Goff was a prime figure behind these accusations, saying that New Zealand should be more concerned with creating jobs as opposed to “pandering” to credit rating agencies.