2 Dec 2009

Tax group ideas need broad support - English

11:02 am on 2 December 2009

Finance Minister Bill English says recommendations from a group reviewing the New Zealand tax system need to be politically viable.

The Government has stated it wants a plan that cuts personal tax rates, is fair and could win long-term political support.

The Tax Working Group, which comprises academics, private sector experts and officials, has spent five months considering ways to overhaul the New Zealand tax system.

The Victoria University-led group will report back to the Government later in December after discussing options at a conference in Wellington on Tuesday.

The group considered a range of reforms, such as increasing the goods and services tax (GST), extending the capital gains tax or introducing a land tax to raise extra revenue.

This would give the Government room to cut personal tax rates and possibly the company tax rate.

The Government on Tuesday said it will consider cutting personal income tax rates when the group presents its final report.

Mr English says he cannot confirm the Government is committed to further tax cuts, but says the only change it has ruled out is taxing the family home.

He says reforms to the tax system that could boost the economy would not last without broad political support.

Status quo 'not viable'

The Tax Working Group says keeping the status quo is not viable. Its chair, Bob Buckle, told Morning Report the group will offer the Government a portfolio of suggestions.

Professor Buckle confirmed that a land tax has been discussed.

"We've looked at seriously at that option. We've looked at capital gains tax, we've looked at more targeted schemes for dealing with investment in property. We have looked at the pros and cons of lifting the GST rate and at some of the ways in which we treat depreciation on buildings.

"There is some revenue to be gained if these proposals are acceptable."

Professor Buckle says some of the group's suggestions could be implemented immediately, but others would depend on economic and political constraints.

System can be improved - NZX boss

New Zealand Stock Exchange chief executive Mark Weldon says the Government can improve the tax system without trying to reinvent it in just a few months.

Mr Weldon, who is part of the Tax Working Group, says there are some effective measures the Government can take in the short term, such as flattening out top personal tax rates while increasing taxes on capital such as rental properties.

He says the Government will have to respond if a tax review in Australia cuts company taxes aggressively.

Work commissioned for the group shows company tax in New Zealand could be cut to 27% without greatly increasing the gap between rich and poor.

However, another member of the group, economist Gareth Morgan, says the system is broken and significant change is needed.

He says wage earners are bearing too much of the tax burden, so they are putting their money in whatever provides the greatest tax reductions, rather than what is more economically productive.