Bill English likes Tax Working Group's 'practical' approach to tax reform

Bill English likes Tax Working Group's 'practical' approach to tax reform

By Bernard Hickey Finance Minister Bill English has welcomed today's report from the Tax Working Group, saying some of its reforms are practical enough and simple enough to be included in the May 2010 budget, although he was careful not to rule any of the specific reforms in or out. His reaction contrasts with the much cooler response given to the 2025 Taskforce report released last month. "It's (The Tax Working Group) done a good job of balancing theory with practical options to solve the issues," English told Interest.co.nz in an interview after the release of the report.

The Tax Working Group of business leaders, accountants, lawyers, economists and bureaucrats recommended a comprehensive set of tax-neutral reforms aimed at rebalancing the economy towards business investment and shoring up the government's tax base. See my report on this from earlier in the day and the full report itself. The reforms recommended included an equalisation of the top income tax rate, the family trust rate and the corporate tax rate, which would involve cutting the top income tax rate to 33% or 30%. This would be paid for with changes to depreciation rules for property investors, a Risk Free Return Method tax on equity invested in property and potentially a land tax. The group downplayed the prospect of increasing the GST rate or introducing a Capital Gains Tax as either unlikely to generate much revenue or administratively difficult. English described the reforms as "a mixture of longer term more complex operations while others were shorter term and less complex" "It's got a good understanding of the need to re-balance the economy in favour of jobs and exports, while improving the integrity and fairness of the tax system," English said. "But there's a reasonably high threshold that any changes have to meet to show they will lift economic growth in the longer term," he said. English reinforced that any reforms were aimed at lifting New Zealand's longer term economic growth rate while remaining fair. English welcomed the proposals for income tax cuts. "They've made quite a strong case for (income tax) change, based on 10 years of experience with a high top rate and an increasing amount of complexity," he said, adding that many on the highest tax rates felt they were paying more than their fair share. The Tax Working Group highlighted that the top 10% of income tax payers now pay a net 76% of the tax burden once the effects of various rebates and income transfers such as Working For Families are taken into account. It also pointed out that 9% of taxpayers were now on the top tax rate, up from 5% when it was introduced in 2001. This was expected to rise to 25% in coming years. "It's pretty important to New Zealanders that people feel they're paying their fair share," he said.

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