New Zealand Tax Proposals Released

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

21 June 2001

The panel conducting a review of the New Zealand tax regime released an issues paper yesterday, containing suggestions based on an initial round of public consultations. The remit of the five person review team is fairly comprehensive, and they are to look at how the country's tax system could be improved by the abolition of certain taxes and the introduction of new ones.

Review chairman Rob McLeod said yesterday that he was happy with the team's progress so far: 'We have been asked to complete a broad review of the tax system and to develop proposals to guide the future direction of New Zealand tax policy,' he explained. 'The paper released today is the first major milestone in that development process.'

The paper recommended that New Zealand should not implement a comprehensive capital gains tax on a realisation basis, as suggested by the OECD last November, as this would encourage people to hold or to sell just to avoid tax, thus tying up assets unproductively. The Review did suggest, however, that a 25% tax on owner-occupied and rental housing might be necessary, as in New Zealand housing accounts for more than 70% of total household savings, which diverts money that might otherwise be invested in assets that improve economic growth. However, this proposal is likely to cause controversy, as the concessionary treatment of home ownership is a tradition quite deeply embedded in the New Zealand psyche.

The committee also proposed that the number of personal income tax rates be reduced from four to two, and that gift tax, and cheque duties, which they deemed 'inefficient', be scrapped. It was also suggested that the corporate tax rate be aligned with the top personal income tax rate. However, the review board promised to look into company taxation of non-resident shareholders, concluding that the levels imposed at present were affecting the country's ability to attract foreign investment.

The finance minister Michael Cullen declined to comment on the specific issues raised by the issues paper, but stated that he hoped that the ideas raised by the board could be debated seriously, without reflexive position-taking interfering with the process. The team will present its final recommendations to the New Zealand government in October of this year, but the government has already said that it won't implement any significant changes before the 2002 election.

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