Government’s heavy hint to tax group
The Government has given the Tax Working Group (TWG) a prod along after it stopped short of reaching a recommendation on the merits of a broad-based capital gains tax in its interim report.
The TWG was established to advise the Government on possible sweeping reforms of the tax system.
It set out two models for what a broad-based tax on capital gains could look like in its interim report published yesterday.
Chairman Sir Michael Cullen said ‘‘the key issue’’ it had looked at was tax on capital income, but said it was not a ‘‘no-brainer’’.
Cullen confirmed the TWG had stopped short of making a recommendation ahead of its final report which is due in February.
Finance Minister Grant Robertson and Revenue Minister Stuart Nash immediately released a letter they had sent to the TWG.
The letter asked it to ‘‘consider a package or packages of measures which reduces inequality, so that New Zealand better reflects the OECD average whilst increasing both fairness across the tax system and housing affordability’’.
The ministers also asked the TWG to examine which of two models for taxing capital gains ‘‘would be best to ensure the tax system was . . . fair and balanced’’.
A source close to the TWG said the letter sent ‘‘a strong signal’’ about the Government’s desire for a broader capital gains tax.
Cullen said there were ‘‘advantages and disadvantages’’ of extending the taxation of capital income.
‘‘There is practically nothing in tax that is a no-brainer.’’
As expected, the TWG has recommended against changes to GST or offering small businesses a discounted rate of company tax.
The TWG also looked at environmental taxes such as taxes on petrol and diesel but had examined the issues in principle only.
The advantages of the broader taxation of capital gains were ‘‘fairness, equity’’ and that people with the same income would pay the same amount of tax.
‘‘In New Zealand a very high level of capital assets are held by the top 10 [per cent] or 20 per cent of the population and that is the main reason why our tax system is less ‘redistributive’ than most developed economies.’’
Capital income tax was complicated, ‘‘but if other developed economies can do it, why can’t we?’’
Cullen acknowledged there was a concern more taxes on capital gains could discourage savings and increase rents, but the evidence contracted ‘‘scare tactics’’ on big rent rises.
Robertson said the Government had ‘‘always been clear that no changes will be implemented this term and that there are key bottom lines’’.
‘‘In particular the family home, increases to income tax and GST, and an inheritance tax are off limits,’’ he said.