Whilst the Government has shelved a Capital Gains Tax, taxing land bankers remains on the table.
Finance Minister Grant Robertson says the Government will explore options for taxing vacant land, including as recommended by the Tax Working Group (TWG). Robertson says he has directed the Productivity Commission to include vacant land taxes within its inquiry into local government funding and financing and seek a review of the current rules of taxing land speculators as a high priority for the work programme.
“The final [TWG] report covered all aspects of the tax system, and a number of the recommendations will now be considered for inclusion in the Government’s Tax Policy Work Programme,” Robertson says.
“That includes exploring options for targeting land speculation and land banking. We intend to direct the Productivity Commission to include vacant land taxes within its inquiry into local government funding and financing,” Robertson says.
The TWG recommended the Government should consider taxing vacant land held by land-bankers as a high priority with the Productivity Commission including vacant land taxes within its review of local government body financing because vacant land taxes would be best levied at a local rather than a national level.
Tax concessions for investors in significant infrastructure projects also still on table
Meanwhile, Revenue Minister Stuart Nash says government officials have been directed to prioritise work on the TWG’s recommendations "on ways to encourage investment in significant infrastructure projects and improve the integrity of the tax system to crack down on tax dodgers.”
In its final report the TWG said a suggestion by the New Zealand Superannuation Fund, of tax incentives for investors in nationally significant infrastructure projects, has merit.
"The New Zealand Superannuation Fund [NZSF] has suggested the use of a limited tax incentive to spur investment into Government-approved, nationally significant public infrastructure projects that would benefit from unique international expertise," the TWG report said.
"NZSF suggested that investors pay a concessionary rate of 14%, i.e. half of the current company rate of 28%, on profits made in New Zealand from qualifying projects. Qualifying investors would need to have a demonstrated capability to deliver world-class infrastructure projects, they would also need to bring expertise that is not ordinarily available in New Zealand and commit that expertise to the delivery of the infrastructure."
"NZSF’s suggestion has merit. The Group recommends that the Government consider the development of a carefully designed regime to encourage investment into large, nationally significant infrastructure projects that both serve the national interest and require unique international project expertise to succeed," the TWG says.
Super Fund likely to remain taxed in NZ
The TWG also recommended giving favourable consideration to the NZ Super Fund from NZ tax obligations. The Government says it will consider this for inclusion on a work programme, "noting the significant economic and fiscal implications associated with this proposal."
The final report from the Michael Cullen chaired TWG said the NZ Super Fund being taxed is unusual from an international perspective given government investment funds in other countries are not generally taxed. Additionally the TWG points out the NZ Government’s other large investment funds, being the investment fund of the Accident Compensation Corporation and the Natural Disaster Fund of the Earthquake Commission, are not taxed. The NZ Super Fund argued in a submission to the TWG it should be tax exempt, pointing out it's the only sovereign wealth fund taxed in its home jurisdiction. In a Double Shot interview with interest.co.nz last October NZ Super Fund CEO Matt Whineray said "it's an anachronism" for the NZ Super Fund to be taxed.
The NZ Super Fund's latest annual report notes that since its inception, the Government has contributed $15.38 billion while the Fund has paid the Government $6.42 billion in tax. In effect this means 42% of what the Government has contributed to the Fund has been returned in tax.
Government contributions to the Super Fund were suspended by the National Party-led Government between 2009 and 2017. In December last year contributions resumed, with the Super Fund receiving an initial $500 million in its 2018 financial year. Contributions will increase over the next four years, with $1 billion planned for 2019, $1.5 billion in 2020 and $2.2 billion in 2021.
Last May the NZ Super Fund made an unsolicited approach to the Government on the proposed Auckland light rail project in partnership with Canada's Caisse de depot et placement du Quebec, which is developing and building the Montreal light rail network. In the interview with interest.co.nz Whineray also talked about the idea of tax concessions for investors in nationally significant infrastructure projects. He said the idea was that such a regime would "level the playing field" for mobile international capital given other jurisdictions have similar regimes in place.