The International Monetary Fund (IMF) has concluded its annual monitoring mission to New Zealand and released a statement making a familiar set of recommendations.
Many of the key messages would be welcomed by the new Coalition Government, things such as advising it should rein in structural deficits and take a tight fiscal stance in Budget 2024.
It also recommended urgently enacting policies to boost housing supply, such as the zoning reform and infrastructure investment promised by Housing Minister Chris Bishop.
But one of its perennial recommendations, to use a capital gains tax to promote productivity, was dismissed out of hand by the Prime Minister and Finance Minister.
Christopher Luxon said he did not believe it was a good idea, while Nicola Willis said the IMF made the same recommendation every year to no avail.
“There are some things that are certain in life: death, taxes, and the IMF recommending a capital gains tax,” she quipped.
Anyone listening?
A few minutes later and one block away from Parliament, IMF mission chief Evan Papageorgiou was asked at a press conference if he felt his words were falling on deaf ears.
“We repeat that line because we think there is a reason why, we think there is a fundamental purpose for a different tax system”.
Politicians and policymakers did listen to the advice but it was ultimately New Zealand voters who got to decide how they want to be taxed.
“Our advice here is that the tax system has a very distinct role to play in how the economy operates and what sort of activities are incentivized, or potentially not incentivized,” he said.
The IMF has recommended a combination of a comprehensive capital gains tax, land value tax, and a reduction in corporate income tax.
Revenue raised could be used to lower individual taxes, or fund the infrastructure and social investments sorely needed in New Zealand.
This reform could help to boost lacklustre productivity as it would remove some of the added incentive that comes from investing in housing over more productive assets.
“I would say that this is a long standing recommendation. Yes, we have repeated it repeatedly. But we are not the only ones. Many other international institutions, the Treasury, and IRD all have very similar opinions,” Papageorgiou said.
Later on Wednesday, Willis reiterated the Coalition Government did not have a mandate to look at this kind of tax reform.
“We take our recommendations from the New Zealand people. We had an election, we were very clear that we are going to deliver personal income tax relief for working New Zealanders and that's what we're focused on”.
Willis said she valued engagement with the IMF as it provided an international perspective which compared New Zealand to other countries and prompted a deeper look at some issues.
The IMF and other economists were welcome to keep making recommendations, many of which she “wholeheartedly agreed with” such as zoning, productivity, and fiscal policy.
Monetary policy
The IMF said it expected economic growth to be slow in 2024, before beginning to pick up pace after the Reserve Bank started to ease interest rates towards the end of the year.
This is a commonly-held view but it differs from the central bank’s own projections for the Official Cash Rate which suggests it won’t be cut until the second quarter of 2025.
While the IMF nominally doesn't have any more insight into the future than any other economist, they do meet with the Reserve Bank and Treasury to discuss policy.
IMF staff said the risk outlook was more balanced than when they visited a year ago and the risk of a policy mistake remained.
“a premature loosening of monetary policy could de-anchor inflation expectations given the extended period of high prices. Conversely, a larger than-anticipated impact of monetary tightening could cause a protracted downturn and drive inflation to undershoot the RBNZ target,” they wrote.
Other recommendations
New Zealand’s fiscal policy was more expansionary than in most other advanced economies and it should be consolidated. A surplus in the next four years should be a priority.
Net debt was currently at sustainable levels but it would continue to grow if the structural operating deficit was not corrected.
The number of units in the Emissions Trading Scheme (ETS) needed to be reduced in order to meet both domestic and international climate targets.
Additionally, agriculture emissions need to be priced and the ETS itself should be adjusted to prioritise gross, rather than net, emission reductions.
45 Comments
The land tax is why I voted for them back with Morgan. Personally the tax would hurt me, but for the sake of fairness in a tax system it is undeniably logical.
Those who think not do not understand the tax system, or they do but have a vested interest.
Simply compare the tax paid by a home owner verse a renter, one with cash in bank, one with cash invested in a home.
Ya comrade, "redistribution for fairness" as we are all equal, of course, except, some are more equal than others.
Tax is not complicated, I understand it in great detail as I pay an excessive amount and therefore it is in my best interests. Might I suggest a lie down.
Income tax is just an envy tax.
The whole "envy tax" retreat from logical argument is merely absurdity cloaking entitlement mentality.
Better to listen to Milton Friedman (for example) on taxing unimproved value of land vs productive work, to see some actual reasonable discussion.
Having to retreat to screeches of "socialist fervour" and other name calling above doesn't look competent. I suggest you read more if you're not sure what was said.
We can point to NZ's own history with the introduction of a land tax to break up speculative land banks in the past in order to get land into the hands of more typical Kiwis, for a start.
Meanwhile, you can point to our low productivity for one of the failings of taxing primarily the productive people.
Further, NZ's entitled property speculators wanting a free ride then a universal old age benefit paid for by the young are far more "socialist"-y (in the absurd social media screeching use of the word) than conservative capitalist economist Milton Friedman.
That would be a Trojan horse.
https://apnews.com/article/un-imf-world-bank-covid-15baf3a9e4d939dd2e08…
*chuckle* I have it on good authority that we already have a Capital Gains Tax in New Zealand, came from a law school graduate on Monday's "Willis" article with 250 comments.
There is a capital gains tax here, and it is dependent on your intentions.... ie if your intention is to make money you are liable for the capital gains tax. That’s a relief because I got that answer right at law school, so I was really hoping the education system had not regressed that much that you all knew more than the university examiners.
Under the intention rule there certainly is, Brightline or no Brightline. With a cash strapped Government having allowed additional funding to IRD for compliance you can pretty much guarantee "intention" and "Tradie cash jobs" will come into focus as other forecasted revenue streams have proved too optimistic. Post 01-July, those who run for the exits giving middle finger to Brightline may draw unwanted attention from IRD.
Inland Revenue Audit Programme press release Feb 2024: https://www.thepost.co.nz/business/350177225/govt-wants-ird-raise-more-…
New Zealand’s fiscal policy was more expansionary than in most other advanced economies and it should be consolidated. A surplus in the next four years should be a priority.
Good grief.
We have a current account deficit that runs at an average of 4% of GDP per year - we import oil, machines, EVs / cars, and global services. These are increasingly worth more than the things we export (crap timber, milk powder, holidays and degrees at under-funded universities). It would take an actual strategy to reverse this position. No sign of that.
Given this embedded current account deficit, we can only run a budget surplus if private sector debt increases by around 6% of GDP per year (that's about $25bn per year - we're heading for $13bn this fiscal year). An increase in private sector debt at this scale is only possible if we see (a) continued stupid growth in house / land prices and / or (b) massive private sector investment in the real economy (e.g. infrastructure) - that actually translates into increased productivity.
Or we could reduce expenditure.
We are doing our best with what we have, we are not Singapore or Ireland with geographic advantages, we could do more to enhance tourisim and get into next generation power (ammonia export) to a degree to reduce imports and increase exports. Private sector infrastructure investment would seem good for NZ, TGH are doing a pretty good job in the Tron but I can't see other opportunities that don't just transfer future earnings to foreign investment funds. Tertiary education generally is undergoing a slow but rich reward for the seeds of evil they have been sowing in society so hopefully we can keep a core, STEM capable, set of institutions at the completion of the changes (20+ years) to enable "actual" higher education to continue. Not an export earner for much longer I would say.
Tourism still has to be a big part of the offering, we started a track to move up-market but I think the vid has put the breaks on that. We need to get back on that horse as it is a) the most resilient part of the industry and b) offers best margins at our small scale.
"It is up to voters to decide how they want to be taxed" - just....eh? No one will ever vote to be taxed more for anything! It is up to our leaders to decide to do it regardless, because it is better for the country overall. They seem to get this concept in other (well run) countries
Who said we'd be taxed more. If a capital gains was offset by reduction in income tax then it could be popular for >50% of the population.
But the big issue with capital gains is the revenue is delayed and unreliable, so its hard to offset. A land tax is a much better option IMO.
Personally I would choose a UBI to replace all welfare (hopefully the same as the current pension but with provision for children and disabilities), a flat income tax on every dollar (probably around 40%), the same GST rate, and a land tax.
We need capital gains on all asset sales, the current set up is clearly needing a change. A land tax is an interesting one, Iwi will be dead against that as they own large tracts of natural land and so would need and exclusion. I think a land tax would be the end of farming so that would need an exclusion. The government would need and exclusion etc etc. A mess.
Jimbo - We already have a land tax - RATES, trouble is its not been spent on core council services - Water/sewage/Roads but on Cycle lanes/Rainbow crap. road bumps at $500K a throw all down to Helen Clarks issuing of general certificates of competence to councils allowing them to encroach on previously private sector business's -flower shows/Busker events councerts many of which lost money and who paid / the ratepayer and who was held accountable ####### let me know if you know of anyone. Suggestion - cancel those certificaiates 31/12/2024 and return those aspects of non core council responsibilities to the private sectors and allow councils over three year period to demonstrate core competence by improving all core responsibilities whilst keeping rate increases to CPI.
lol it worked for Ireland as they set it at a ridiculous 10% (7% actual) in a deal with big tech. They were/are being sued by the European Union (their main benefactor) for this tax haven behaviour.
Dunno. Seems like economic analyses point to about 75% of company tax being borne by employees in the form of lower wages. Lowering taxes on companies and raising rates on lazy speculation on housing would be a good combination for rewarding the enterprising productive folk.
I have long held the view that NZ should have some form of comprehensive capital taxation-what we have now is not fit for purpose. It is unarguable that we are an outlier in this respect; the only country in the OECD without a CGT for example. Many of us head across the Tasman for brighter prospects, not at all deterred by their CGT or the property taxes.
During my working life in the UK, I regularly dealt with both CGT and IT( Inheritance Tax) issues for clients and the UK also has property tax in the form of stamp duty.
I would not support a wealth tax and looking at the revenue raised in the UK from CGT, the rationale for having it here would rest more on fairness than the tax income it would raise. My preference would be to introduce a stamp duty on all property sales. It would be easy to administer and difficult to avoid.
The way local body rates are going , they are becoming a defacto Stamp duty of sorts .
Probably, something that the NATs would be happy with , load more costs and less contributions onto local councils.
Isnt unemployment and social housings paid by councils in England?
"Christopher Luxon said he did not believe it was a good idea, while Nicola Willis said the IMF made the same recommendation every year to no avail."
What do you expect.
National supporters are right of centre and include the wealthy and property investors. These groups want their ongoing (tax) subsidies and don't give a damn about the poor or the net wellbeing of society. (I note in a capitalist society there will always be the poor and unemployed - it's a structural feature)
National is undertaking out and out class warfare, and not doing what is best overall for NZ.
It;s ok for the rest of the OECD to have (comprehensive) capital gains taxes, but stuff NZ.
The sooner National is voted out the better for NZ as a whole.
All these comments demanding more tax. I fear tax increases because I always pay, I do not get the offsetting, and I am little cost to the government. In other words, I do not want to pay more tax. It will not be spent on me. I am sick and tired of paying for others poor life choices, "Boxer" works for himself.
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