Booze, land banking and other targets
Catherine Harris looks at five things the Tax Working Group studied beyond capital gains.
Most of the attention on this week’s final report from the Tax Working Group has focused on property and capital gains.
But the report also gives considerable thought to taxing shares, empty houses, gig workers, business assets and vices such as sugar.
The group noted New Zealand had a ‘‘relatively narrow’’ range of taxes at the moment, most of it raised through income and GST, with corrective taxes like alcohol and tobacco a distant third.
Its report looked at other potential areas of tax revenue.
Vacant properties
Owners of empty houses or apartments have long been criticised for treating them like pristine investments, rather than putting them to productive use in the rental pool. There can, of course, be a variety of reasons why this actually occurs.
The Tax Working Group suggested there might be room for a tax on vacant residential land, or empty homes in residential areas.
And while stopping short of a recommendation, it advised there were already international examples.
In Vancouver, one of the world’s dearest property markets, homeowners must submit declarations annually or pay an empty home tax. Currently that sits at 1 per cent of the property’s current taxable value, as well as a $250 penalty.
Here, the Auckland Council appears to have ruled out the idea, despite the fact in 2016 it had 33,000 empty homes – a vacancy rate of 6.6 per cent.
Activist group The Christchurch Progressive Network says that’s higher than any Australian city.
The Tax Working Group said vacant house or land-banking taxes would be most feasible where a local authority had rezoned the land and provided infrastructure but the land remained vacant.
It recommended the Productivity Commission include these taxes within its review of local government funding and financing.
Alcohol and other ‘bad habits’
The group also looked at ‘‘corrective’’ taxes in areas including alcohol, tobacco and sugar. The first two are already heavily taxed but sugar isn’t.
Acknowledging widespread public interest in a sugar tax, the group said it really depended on what the Government was trying to achieve.
‘‘If the Government wishes to reduce the consumption of sugar across the board, a sugar tax is likely to be an effective response.
‘‘If the Government wishes to reduce the sugar content of particular products, regulation is likely to be more effective. In either case, there is a need to consider the use of taxation, alongside other potential policy responses.’’
With regard to tobacco, the group felt that it was better to put the focus on preventative measures to stop smoking than raise excise tax any further.
Businesses
Businesses hoping for a lower company tax rate, or progressive taxes, were sorely disappointed.
But the Tax Working Group did extend tentative support for restoring building depreciation on commercial and multi-unit residential buildings.
Valuations for businesses will be necessary just like for property, but that could prove a significant issue for private companies, according to Tony Marshall, of business advisers Crowe Horwath.
Business owners hold shares in their companies and when they are sold, the business’ value is split in two. The company’s land and assets are given one value, and the owners’ shares are based on goodwill and future potential.
At the moment, both are capital gains tax-free, so ‘‘for most businesses, when they sell, there’s very little tax obligation’’.
Shares under the proposed regime would be taxed. That’s simple enough for those who play the sharemarket, but for company shareholders, ‘‘there needs to be some sort of mechanism for ensuring you don’t get taxed twice’’.
Environment
Apart from the emissions trading scheme, which the group supported, the review fell short of recommending environmental taxes or fiscally neutral packages.
But the group said that did not mean there should not be any.
‘‘New Zealand faces significant environmental challenges that require profound change to existing patterns of economic activity. Taxation is one tool – alongside regulation and spending measures – that can support and guide this transition.’’
The group supported the Environment Ministry’s current review of the waste levy, and the prospect of expanding it to landfills that aren’t paying it.
It also suggested that new tools, such as an environmental footprint tax or a natural capital enhancement tax, could be considered later.
The future of work
As the number of self-employed ‘‘gig’’ workers rises and the tax base ages, the group expressed concern about the future revenue of the ‘‘pay as you earn’’ tax system.
It supported Inland Revenue’s efforts to increase compliance among the self-employed. It also called for increased use of withholding taxes for workers in areas such as ride-sharing companies.