English indicates Budget 2010 will increase effective tax rates on property

Finance Minister Bill English has indicated in Parliament that Budget 2010 due at 2pm on Thursday will increase effective tax rates on property, which may offset any gains from income tax cuts for higher income earners. English made the comments in response to a parliamentary question from Green Party Co-Leader Russel Norman about the need for a capital gains tax. "We intend to make some moves to ensure that the effective tax rates on property are increased. As the member has pointed out, property tends to be disproportionately owned by higher-income families, and that is why higher-income groups will find that tax reductions may be offset by changes in the taxation of their property assets," English said. Here is the full transcript of the exchange in Parliament below. The video of the questions and answers is below that.

Dr RUSSEL NORMAN: Does he agree with the advice from Treasury in 2009 that “capital assets are owned disproportionately by higher income families … Taxing capital gains would increase the progressivity of the tax system.”; and does he support a more progressive tax system? Hon BILL ENGLISH (Minister of Finance): Yes, I agree with the statement, and the current system is progressive. The top 10 percent of taxpayers pay 74 percent of net income taxation. Dr Russel Norman: Does he agree with comments by Auckland University **Professor Craig Elliffe, where he says that under New Zealand’s present tax system it is wrong that a salary earner pays more than $30,000 tax on a $100,000 salary, while, if a person receives an income of $100,000 from capital gains, he or she pays no tax; how can that be a progressive or fair tax system? Hon BILL ENGLISH: In the first place, that is not quite correct. A number of people pay taxation on capital gains, and the member may find that he wants to support the Budget, because in the Budget we intend to make some moves to ensure that the effective tax rates on property are increased. As the member has pointed out, property tends to be disproportionately owned by higher-income families, and that is why higher-income groups will find that tax reductions may be offset by changes in the taxation of their property assets. Dr Russel Norman: Does he agree with pretty much most of the Treasury paper, and many of the tax experts, on this issue, that if we want to target the capital income being earned by the top 10 percent of New Zealand households, then the simplest and best way to target that is a capital gains tax excluding the family home, and that that would actually achieve a much more progressive and fair tax system? Hon BILL ENGLISH: As was evident from the *Tax Working Group and the Treasury advice, that is an arguable proposition. The Government made the decision not to proceed with a capital gains tax for a number of pretty pragmatic reasons, and in the Budget we will announce what measures we will proceed with. Dr Russel Norman: With reference to the Budget, will increasing the rate of GST to 15 percent and dropping the tax rate to 33 percent make our tax system more or less progressive? Hon BILL ENGLISH: The member will just have to wait for the Budget to see. I say that all tax measures should be taken as a whole. Just one or two measures cannot be taken as an indication of whether progressivity has increased or decreased. In the Government’s view, the tax package that will be presented is fair. Dr Russel Norman: Is *John Walley from the *Manufacturers and Exporters Association not right when he says that it is difficult to see why a capital gains tax is so politically untenable in New Zealand when it would both make housing more affordable and help create jobs and real wealth? Is Mr Walley not right, and why does the Government not embrace this very sensible measure which is missing from our tax system? Hon BILL ENGLISH: In the first place, the Government is putting together a package of measures designed to increase the performance of our economy, because that is how we get growing incomes, more jobs, and more investment. That is the focus of the tax package. As I said before, there are plenty of arguable propositions about how to tax capital in New Zealand. We do not have a comprehensive or tidy system for doing it. The Government has made some pragmatic decisions about what we will do, and they will be announced on Thursday.