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NZ Singled Out For Praise By Tax Foundation Think Tank

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

01 November 2017


In introducing its new 2017 International Tax Competitiveness Index, the Tax Foundation, a US tax policy think tank, notes the importance of simple but effective tax regimes and highlights New Zealand as the country that has implemented particularly positive reforms.

Introducing the latest edition of its index, the Tax Foundation said: "The structure of a country's tax code is an important determinant of its economic performance. A well-structured tax code is easy for taxpayers to comply with and can promote economic development, while raising sufficient revenue for a government's priorities. In contrast, poorly structured tax systems can be costly, distort economic decision-making, and harm domestic economies. Many countries have recognized this and have reformed their tax codes. Over the past few decades, marginal tax rates on corporate and individual income have declined significantly across the Organisation for Economic Co-operation and Development (OECD). Now, most nations raise a significant amount of revenue from broad-based taxes such as payroll taxes and value-added taxes (VAT)."

"New Zealand is a good example of a country that has reformed its tax system," it continued. It noted that "in a 2010 presentation, the chief economist of the New Zealand Treasury stated, 'Global trends in corporate and personal taxes are making New Zealand's system less internationally competitive.' In response to these global trends, New Zealand cut its top marginal individual income tax rate from 38 percent to 33 percent, shifted to a greater reliance on the goods and services tax, and cut its corporate tax rate to 28 percent from 30 percent."

"New Zealand added these changes to a tax system that already had multiple competitive features, including no inheritance tax, no general capital gains tax, and no payroll taxes," the Tax Foundation pointed out.

"Some nations, however, have not kept up with the global trend," its report continued. "The United States, for example, has not reduced its federal corporate income tax rate from 35 percent since the early 1990s. As a result, its combined federal, state, and local corporate tax rate of about 39 percent is significantly higher than the average rate of 25 percent among OECD nations. In addition, as most OECD nations have moved to a territorial tax system, the United States has continued to tax the worldwide profits of its domestic corporations."

It noted also that some countries have made their tax regimes less effective, taking the example of France. It said: "Over the last few decades, France has introduced a number of reforms that have significantly increased marginal tax rates on work, saving, and investment. For example, France recently instituted a corporate income surtax, which joined other distortive taxes such as the financial transactions tax, a net wealth tax, and an inheritance tax."

The Tax Foundation's International Tax Competitiveness Index (ITCI), released October 31, seeks to measure the extent to which a country's tax system adheres to two important aspects of tax policy: competitiveness and neutrality.

Estonia is top of this year's Index, due to the competitiveness of its corporate tax regime and property tax regime (placing 1st in both these sub-indices). New Zealand, credited with the most competitive and neutral individual income tax regime, is 2nd, followed by Switzerland, Latvia, and Luxembourg. The United Kingdom placed 14th in this year's index, Japan is 22nd, the United States is 30th, and France was bottom of the index at 35th.

TAGS: inheritance tax | tax | investment | property tax | Organisation for Economic Co-operation and Development (OECD) | Estonia | Latvia | Luxembourg | United Kingdom | payroll | tax rates | France | New Zealand | Switzerland | United States | individual income tax | Japan | services | Tax

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