New Treasury head Makhlouf sees room for capital taxation, questions doomsayers' scenario for NZ if Greece defaults on debt

New Treasury Secretary Gabriel Makhlouf says there is still room for further changes to New Zealand’s tax mix, with Treasury still looking at forms of capital taxation, although it was reasonable to wait and see what effect last year’s changes have had.

Speaking to interest.co.nz on his first day on the job (although he had been Acting Secretary since John Whitehead left for the World Bank at the end of May), Makhlouf was upbeat on New Zealand’s economic prospects, saying the fact the centre of the world economy was moving in our direction – a reference to China’s economic ascendancy – was a great opportunity that needed to be built on.

See more here on his appointment and background, which included a spell as Principal Private Secretary to former UK Chancellor of the Exchequer, Gordon Brown.

Still looking at capital taxation

“I think there is room for more tax reform, I think it’s also entirely reasonable to wait a bit longer before you make judgments as to whether last year’s tax changes have worked or not,” Makhlouf said when asked if more work could be done on New Zealand’s tax mix.

Company tax changes had only just come into effect, while GST and income tax changes had not been in effect for much longer.

“Some of this stuff takes time to work through. But is there room for more in tax reform? I think the answer is yes. Is there room for more in the capital taxation area, the answer is yes,” Makhlouf said.

“The Treasury’s views on capital gains tax are well-known [it’s in support], and I’m not going to change those. But the government’s also made its position pretty clear on that,” he said.

“It’s their call, it’s the government’s call. Our job is to give people advice of what we think.”

Treasury was spending time thinking about capital taxation beyond the simple issue of a capital gains tax, and would come to a view “at some point” on that.

However it was also cautious of where government ministers stood on the issue, so prioritised accordingly.

'Greek situation won't become a Lehman moment'

Meanwhile, Makhlouf was more upbeat than what might be expected of the dangers posed to New Zealand were Greece to default on its debt obligations.

“It’s bound to have an impact, but is it going to actually stop us [NZ] from borrowing? I think that’s unlikely because I think the fundamentals here are still fairly attractive to investors,” Makhlouf said.

People suggesting a Greek debt default would be another ‘Lehman moment’ – where New Zealand banks’ funding lines were essentially withdrawn for some weeks in 2008 after the bankruptcy of US investment bank Lehman Brothers – might be slightly off the mark.

“I’m not sure why they say that, incidentally, because I’m trying to think, what was the Lehman moment. For me, the Lehman moment was making a decision that, five minutes after you made it you regret it because the world imploded,” Makhlouf said.

“I bet you if we went back in hindsight, would the US [Treasury] Secretary decide not to help Lehman, if he knew what was going to happen? Unlikely,” he said.

“I think the Greek situation is different. One of the reasons I say that is just observing the French [President] in the last few days, for example saying [of French banks]...that they’re prepared to roll over the [Greek] debt.”

Makhlouf’s personal view was if there were changes in the Greek situation it would be about rescheduling and re-profiling debt, rather than defaulting.

“And there’s enough brain power going on, focusing on the Greeks, that you’d like to think that they’d arrive at some sort of compromise that would satisfy most people,” he said.