The Tax Working Group (TWG) released its long awaited Final Report (‘the Report’) on 21 February 2019, following a 13 month review during which the Group received over 7,000 public submissions. The report contained 99 recommendations for the Government’s consideration; including the introduction of a broad Capital Gains Tax (‘CGT’).
Two months later the coalition Government ruled out the introduction of a CGT for the foreseeable future. The current Government is a coalition and without consensus it could not move forward.
Where does this leave us? What about the remaining 97 recommendations? The government has provided a written response to each of the TWG’s recommendations. However, the overall theme is that there will be no significant change or major evolution.
A number of the recommendations by the TWG were to make no change. For example, the TWG recommended the corporate tax rate should remain at 28% and no progressive corporate tax rate system should be introduced. The government has endorsed maintaining the current business and personal income tax regimes as they are.
The Government has agreed to investigate taxing land banking, as this may trigger land development. This ‘power’ could be passed to local government. This has been referred to Inland Revenue to be added to its (IRD) tax policy work programme (TPWP) for consideration.
The Government is to continue its focus on the taxation of multi-national corporations (MNCs). The government is working closely with the OECD to achieve equity regarding income tax received by all jurisdictions in which MNCs operate. A draft discussion document is due to Cabinet by May 2019 regarding the taxation of the digital services economy, informally labelled the ‘Google Tax’ or ‘Facebook Tax’.
Part of the TWG’s final report covered what the revenue from a CGT should be used for, and therefore proposed a number of ‘spending packages’. The packages included bringing back depreciation on buildings, reducing taxes on income from savings, and increasing the income threshold for the 10.5% personal tax rate from $14,000 a year to at least $20,000 a year.
However, without the additional revenue that would come from a CGT, the Government has ruled out such changes as no longer attainable.
Most of the TWG’s recommendations have been referred to IRD for ‘potential’ inclusion on the TPWP. What action the TPWP drives remains to be seen. Some of these recommendations will be addressed as a by-product of the IRD’s ongoing transformation project. Through its improved systems there will be an enhanced focus on data and closer interaction with businesses and individuals using the online platforms, therefore work on enhancing the integrity of the tax system has already been under way for some time.
Ultimately, the outcome of the TWG process is mirrored by NZ’s MMP system. Action (as opposed to inaction) by a coalition government requires consensus from the members of that government. That consensus did not exist.