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Reports by the TWG

Future of Tax: Final Report Volume I - Recommendations [HTML]

Issue date: 
Thursday, 21 February 2019
Version note: 

Issued by the Tax Working Group.
ISBN: 978-1-98-858003-6 (Online)
PDF version is also available.

Preface

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Since the release of our Interim Report in September 2018 the Tax Working Group has undertaken further rounds of engagement and consultation. Alongside this process, the Group has developed and further refined its conclusions outlined in the Interim Report.

The engagement process has reached out to various parts of society, including Māori, civil society, tax professionals, business and environmental organisations. There has also been discussion with tax professionals in Australia to learn from their experience. This engagement reflects and is reflected in the work the Group has undertaken since early September.

As might be expected, the submissions on the Interim Report contained a wide variety of opinions. They ranged from full endorsement of the recommendations in the Interim Report, often wishing to see at least some of them go further, through to substantial rejection of the majority of the recommendations.

Those wanting to go further were bunched into two clusters. The first primarily wished the Group to consider matters outside its Terms of Reference, such as the tax:welfare interface and higher tax rates (particularly for those on higher incomes). In this cluster there were also some who wished to revisit areas that the Group had already carefully considered, with a clear majority recommending no change (such as for a financial transactions tax).

The second cluster was largely composed of groups or individuals wishing to strengthen or extend some part of the recommendations. These were most often concerned with environmental issues or the Interim Report's conclusions on behavioural taxes (which some wished to be renamed health promotion taxes).

The Group has carefully considered these submissions but has not accepted them all. In particular, we have adhered to our Terms of Reference, though we have made some incidental comments where we deemed it appropriate.

We have also reaffirmed the views expressed in the Interim Report concerning the purposes of tax. This report does not repeat those sections in full. Similarly, it does not repeat a number of other sections from the Interim Report where we have made no changes.

In other words, the Group's consideration of particular propositions continues to reflect the fundamental proposition that there are three main ways in which the tax system supports the wellbeing of New Zealanders: as a fair and efficient source of revenue; as a means of redistribution; and as a policy instrument to influence behaviours.

There was broad but not universal support for this position from submitters. As far as the Interim Report's specific recommendations are concerned, those rejecting them did so primarily in relation to the chapter and the appendix dealing with the extension of capital gains taxation. Where possible, the Group has taken account of those submissions, especially in relation to the vexed question of compliance costs.

Since the Interim Report the Group's internal discussions have focused primarily on the extension of capital taxation. Given what capital income is taxed already, that has meant consideration of the taxation of capital gains. Despite differences of opinion on how far such taxation should go, the Group agreed that whatever is done should be part of the general income tax system and not a separate capital gains tax regime. The reasons for this are explained in this report.

As I have indicated above, the Group was not of one mind on whether the proposed regime should proceed. A clear majority (eight to three) supported that position. But I should note and thank the three in the minority (Joanne Hodge, Kirk Hope and Robin Oliver) who played a full part in the lengthy development of the technical details. Their contributions were invaluable.

It needs to be emphasised that this difference of judgement relates to the rather simplistic binary decision of being for or against the package of capital gains taxation as a whole. In reality, that is not the only question for the Government (or Parliament) to consider.

As this report emphasises, it is possible to introduce the package in whole or in part, whether all at once or in stages. The balance between revenue and equity on the one hand and complexity and compliance costs on the other differs between asset classes. The most complex asset class is arguably the active business one - as Volume II of this report demonstrates.

This report is about much more than capital gains taxation. I would draw attention, in particular, to the work done on encapsulating the Wellbeing Framework within a Māori world view (Te Ao Māori). This then flows into the substantive section on environmental taxation that goes beyond the near-term challenges to a longer-term tax framework to underpin a circular economy.

It should be noted that no attempt has been made to incorporate possible revenue from environmental taxation in the development of revenue- or fiscally-neutral packages. Suffice to say that environmental tax revenue could be recycled in a number of ways, especially to fund and support a faster transition to a circular economy, as well as offsetting the impact of such taxes on modest-income households.

Finally, let me thank all the members of the Group for their thoughtful participation and especially their forbearance of my occasional impatience. Our officials have been dedicated and assiduous in carrying out their tasks. It is difficult to single out anybody but Bevan Lye's work as the principal scribe on the Interim and Final Reports has been masterful. Last but far from least, our independent advisor, Andrea Black, has laboured mightily to ensure a diversity of views has come before us.

Hon Michael Cullen, KNZM
Chair, Tax Working Group

February 2019

Tax Working Group members:

Marjan van den Belt
Professor Craig Elliffe
Joanne Hodge
Kirk Hope
Nick Malarao
Geof Nightingale
Robin Oliver, MNZM
Hinerangi Raumati, MNZM
Michelle Redington
Bill Rosenberg

Independent Advisor:

Andrea Black

Last updated: 
Thursday, 21 February 2019