PM English pours cold water on calls for tax treatment of 'other' forms of savings to be the same as for property; Also says case for corporate tax rate cut faces high hurdles

By Alex Tarrant

Those holding out for the tax treatment of property and other forms of savings to be equalised better not hold their breath.

Prime Minister Bill English poured further cold water on the idea – albeit with a focus on the property side of the ledger – at his post-Cabinet press conference on Monday afternoon.

The same goes for business groups calling out for a cut in New Zealand’s corporate tax rate, with English saying there was a “high hurdle” to show a move would be beneficial.

In other comments, English said New Zealand has “probably the best tax system in the developed world in the sense that it’s comprehensive, it’s fair and we have the lowest taxes on labour, pretty much, in the developed world.”

“You do another hour of work in New Zealand, you pay less tax on it than almost any other developed country,” he said.

‘Can’t just fiddle around’

Although calls for a comprehensive capital gains tax (CGT) to bring property fully under the taxation umbrella have been ringing through New Zealand in recent years, the political difficulties in getting changes through has seen campaigners raise alternative ways to level the playing field.

Economist Andrew Coleman and tax consultant Terry Baucher have recently appeared on interest.co.nz discussing one alternative, which is to bring the tax treatment of other forms of savings into line with property, rather than introducing a comprehensive CGT or imputed rent tax.

You can also read interest.co.nz’s coverage of the PSA's booklet on the fairness of New Zealand's tax system here.

Finance Minister Steven Joyce was asked about the property/savings tax fairness possibility during last week’s Budget lock-up. He didn’t dismiss the idea, although said it would be something to be looked at some time down the track, if at all.

Asked his views on Monday, English held off completely ruling the move out, but his response won’t lead to confidence that it’s being openly considered by the current government.

He offered up that property investment in New Zealand was treated like any other business. He had been asked about property as a form of savings.

But then on savings, his comments indicated the government did not see a reason to move: “You can have the argument about it, but the fact is that people make reasonably sensible investments,” English said.

Recent Reserve Bank figures on New Zealanders’ savings habits showed “the more we understand about it, the more diversified their savings look.”

“We’re always open to improvements. You need a pretty strong case,” he said. “Just fiddling with it to make it look like [you’re] ‘doing something’ isn’t really the threshold from our point of view.

“You need to see some significant economic benefit.”

High hurdle for corporate tax cut

English indicated the government would also need to see stronger evidence to consider a cut to the corporate tax rate.

He offered up a bit of hope: “You never want to close off the policy options of looking at improving the tax system.”

But: “You just need a high hurdle to show what’s going to be beneficial. It’s not…a panacea in the way that business groups sometimes market it.”

A corporate tax cut could have benefits, particularly in an economy like New Zealand’s, which consisted “basically of co-operatives and small businesses, where retained earnings matter as a source of investment more than publicly raised capital.”

“But the point I’m making is, those are fairly involved, complex discussions. The hurdles are pretty high for showing that we’re going to be better off than the fairly neutral system we have. But we’re open to that discussion,” he said.

In a lot of countries dividends were double-taxed, English said. “We have imputation, so that’s a different effective tax rate.

“And our top tax rate is lower than most countries. So, [business owners in other developed countries] might pay a lower intermediate tax rate in their company, but once the money comes out of the company, they pay a much higher personal tax rate,” English said.

“You need a pretty high threshold to show that there’s going to be equity benefits from it. The other challenge with company tax is that, because it’s an intermediate tax, it’s actually most beneficial to foreign owners of New Zealand businesses, because they just get a straight cut, whereas in New Zealand it just reduces your intermediate tax.”