McLeod Review Tax Proposals Ignored

by Mary Swire, Tax-News.com, Hong Kong

25 October 2001

New Zealand's Finance Minister, Michael Cullen, announced on Wednesday that he would not be implementing the vast majority of the recommendations made by the McLeod tax review panel.

When the tax review panel made its findings public on Wednesday morning, review chairman Rob McLeod observed that although in essence the country's tax system is sound, there are still some sweeping changes which need to be made.

'The broad architecture of the tax system is sound and the programme of reform over the last 20 years has been positive and should not be reversed,' he explained. 'However, some problems with the tax system remain. Many of the problems we identify defy neat solutions, and require trade-offs between competeing and conflicting objectives.'

The review panel showed itself willing to compromise earlier this year when it dropped a controversial proposal to remove tax privileges on property investment, which it claimed were tying up the bulk of New Zealand's investment capital. Mr Cullen, however, doesn't appear to know the meaning of the word.

In a move which begs the question of why the $1 million study was commissioned in the first place, the Finance Minister announced that the proposed reduction in the top rate of income tax from 39 cents in the dollar to 33 would not be taking place, and that the panel's proposal to cut the number of tiers of personal income tax from four to two had been rejected. A plan to abolish tax on alcohol, tobacco and gambling, which would have been countered by an increase in GST has also received the thumbs down from the government.

Mr Cullen did agree with the review panel's observations that tax changes are necessary to attract more foreign investment to New Zealand, but announced that there would be no significant moves made on taxation until after the next election.

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