The Government has revealed its tax work programme which will aim to support economic growth and make the system more efficient, but without changing overall revenue.
Revenue Minister Simon Watts said Inland Revenue would publish a long list of possible tax law updates—called ‘remedials’—next month but would need them to be fiscally neutral.
“There isn't much, there isn't hardly any, there's no money, basically,” he told a gathering of tax lawyers at Deloitte on Tuesday.
“So, the challenge is to ensure where we are looking to make improvements and enhancements, we can counterbalance that in other areas”.
Watts said the work programme would focus on six outcomes: economic growth, integrity, modernisation, international connectivity, social policy delivery, and all-of-Government coordination.
In a press release, he said the Government had promised to rebuild the economy without collecting more taxes from New Zealanders.
Some significant changes
While the tax work programme aims to be fiscally neutral overall, there are some proposed changes which could have significant impacts in either direction.
It will consider making the NZ Super Fund tax exempt. The pension fund was set up with a tax liability, unlike other sovereign wealth funds, partly as a tool to manage its annual fiscal impact.
Contributions paid into the fund come from the operating balance and limits other spending, even though the assets stay on the balance sheet and boost future spending power.
Charging tax brings some of those contributions back into the Crown coffers. The fund has recently reached a size where its annual tax bill will outstrip the annual contributions.
It was designed to work like this, with the tax liability giving finance ministers a way to effectively withdraw some money from the fund without having to change the law.
The Government has put a total of $26.5 billion into the fund but only a net $16.8 billion, when accounting for taxes, and that net number will fall to about $7 billion by 2034.
However, the Treasury remains nervous about how to pay for pensions as the population ages and the Super Fund will not be able to cover all of the increasing cost.
Watts said a possible tax exemption for the Fund “could free up more funds for retirement savings”. But the Government could also lower its annual contribution and make the tax exemption fiscally neutral.
Finance Minister Nicola Willis said it was too early to say which option the Government might prefer, when asked about it at Parliament on Wednesday.
Not so charitable
Another fiscally significant tax change in the new work programme will be a review of “elements of charities and not-for-profits” which also enjoy income tax exemptions.
Some people are uncomfortable with commercial businesses, such as Sanitarium, not having to pay taxes simply because they are owned by a church, iwi, or other charitable group.
The Act Party campaigned on requiring charities to split their commercial operations into a separate entity which had to pay tax on any income not passed over to the charitable entity.
Willis said she did not know how much revenue the changed rules could bring in.
“That depends on what policy choices we make. I have been open about the fact that we think there are some loopholes in that area, which is why we are taking advice,” she said.
Watts will also look at policies to help Inland Revenue reduce tax debt and collect repayments from overseas student loan borrowers, both of which may boost revenue a little.
Other tax settings set to be reviewed are fringe benefit tax, capitalisation settings for infrastructure, foreign investment fund rules, and GST charges on joint ventures.
20 Comments
Millennia of rorted privileges at stake.
However, over half of NZdrs claim no religion now.
https://www.nzherald.co.nz/nz/census-data-nz-more-than-half-of-the-popu….
Uhhhh, the dystopian view of the world's future seems to dominate across a lot of media. In fact, negativity purvades most of our current affairs/news reporting to a degree well and above any reporting of anything positive that might be going on.
It's always good and bad happening at the same time. We have an option over the colour of the lens we're viewing life through.
Relax PDK, everything's out of control.
Watts said the work programme would focus on six outcomes: economic growth, integrity, modernisation, international connectivity, social policy delivery, and all-of-Government coordination.
Too many outcomes I feel. The measuring of this and enforcement of govt trying to stick to, and achieve all of these will make any policy change convoluted. How does one measure modernisation? What level of international connectivity should we set a goal for and how will we know if this is a positive or worthwhile target? Too many quesitions involving too many departments, and too much communication needed via too many levels.
The word 'revenue' comes from the Middle French word revenir, which means 'to return'. It was first recorded in the late Middle English period, between 1375 and 1425.
Why should the revenue minister know this? Because there is a big clue here as to how Govt money actually works. Govt create and spend brand new money, and then they tax it back and destroy it.
The money that Govt spends into the economy 'returns' when they collect taxes. That's what 'revenue' is - money returning. There is another clue in a term that is still used by Treasury - 'residual cash'. That's the cash that Govt have spent but not taxed back yet. Govt typically swap that residual cash for nice safe Govt bonds. Bonds are interest-earning savings account generously provided by Govt. Hell, those savings accounts can even be traded by investors and pensions funds. Such fun.
Why am I making this technical point? Because, there is nothing more depressing than watching a revenue or finance minister standing up and saying 'there is no money'. Govt decides how much money to create and spend each year when they set a budget. They vote on it - they even call the budgets they set for different areas of expenditure 'Votes'.
There's plenty of money, it's just not going to the right places.
Like a car's engine, you might have sufficient oil but if it's not making it up the oil galleys to lubricate the moving parts, then it's accumulating and percolating in the sump. A fitting analogy for our welfare bill?
A fitting analogy for our entire economic 'wealth' system.
Origin of wealth - well and weal - welthe - health - wealth. Wellbeing, welfare or fare well, happiness/good fortune, common weal - for the benefit and best interest of all.
Hebrew: Mammon - money
Aramaic: Māmōnā - riches
Greek: Mammonas - money, wealth, material possessions.
Having worked in the social sector I have experience of the so called charities. They are not charities they are government contractors. And many behave badly.
Those who most advertise their virtue, tended to be the worst.
Tax them like any other commercial enterprise. Because that is what they are, even if they don't have outside ownership.
All entities engaging in commerce should be taxed. Whatever they have left over after tax can then be distributed to the charity. Then they will be on the same footing as every other charity who receive money from individuals' after tax donations. Personally, I have never understood how a business was ever allowed to pose as a charity in the first place.
what am i missing here?
“There isn't much, there isn't hardly any, there's no money, basically,” Simon Watts
but any changes need to be 'fiscally neutral' why? the NZ Superannuation Fund being tax exempt due to fear of increasing costs for the fund but if we keep the changes fiscally neutral does it really do anything to alleviate that fear for the future?
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