New Zealand Mulls Savings Tax Reforms

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

22 November 2010

In a recent conference address, New Zealand’s Revenue Minister Peter Dunne pointed out that, following the last budget’s tax reforms, including lowering personal and corporate taxes and increasing the goods and services tax rate, the government was now looking to introduce measures to promote savings and investment.

He confirmed that the Savings Working Group (SWG), set up in August this year, is looking at all issues involved in order to improve New Zealand’s savings track record, and reduce the country’s “unsustainable reliance on credit”, particularly on offshore borrowing to fund both investment and consumption.

When establishing the SWG, the Finance Minister Bill English said that the only exclusions in its wide-ranging brief are changes to superannuation and the broad taxation of capital gains or land, both of which the government had previously ruled out.

More specifically, Dunne said, the SWG is looking at whether the tax system should be indexed for inflation to reduce tax biases between different forms of saving; and “whether certain forms of capital income, such as interest, should only be partially taxed as was suggested in the Henry Review in Australia to offset the way in which inflation can lead to this income being overtaxed.”

The SWG will also consider whether New Zealand should adopt a Nordic tax system with a low flat tax rate on capital and higher progressive rates only on labour income; whether or not taxes on profits accumulating in retirement savings accounts should be taxed; and whether or not the current capped tax rate for portfolio investment entities should be removed, or extended to other forms of passive investment income.

“At the same time,” he added, “it is crucial that any changes in this area are responsible and fiscally affordable. New Zealand's low level of public debt has been important in sustaining New Zealand through the recent great financial crisis.”

The SWG is to recommend policy options in January next year.

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