The Government has revealed its tax work programme which will aim to support economic growth and make the system more efficient, but without changing overall revenue.
Revenue Minister Simon Watts said Inland Revenue would publish a long list of possible tax law updates—called ‘remedials’—next month but would need them to be fiscally neutral.
“There isn't much, there isn't hardly any, there's no money, basically,” he told a gathering of tax lawyers at Deloitte on Tuesday.
“So, the challenge is to ensure where we are looking to make improvements and enhancements, we can counterbalance that in other areas”.
Watts said the work programme would focus on six outcomes: economic growth, integrity, modernisation, international connectivity, social policy delivery, and all-of-Government coordination.
In a press release, he said the Government had promised to rebuild the economy without collecting more taxes from New Zealanders.
Some significant changes
While the tax work programme aims to be fiscally neutral overall, there are some proposed changes which could have significant impacts in either direction.
It will consider making the NZ Super Fund tax exempt. The pension fund was set up with a tax liability, unlike other sovereign wealth funds, partly as a tool to manage its annual fiscal impact.
Contributions paid into the fund come from Government revenue and limits some other spending, even though the assets stay on the balance sheet and boost future spending power.
Charging tax brings some of those contributions back into the Crown coffers. The fund has recently reached a size where its annual tax bill will outstrip the annual contributions.
It was designed to work like this, with the tax liability giving finance ministers a way to effectively withdraw some money from the fund without having to change the law.
The Government has put a total of $26.5 billion into the fund but only a net $16.8 billion, when accounting for taxes, and that net number will fall to about $7 billion by 2034.
However, the Treasury remains nervous about how to pay for pensions as the population ages and the Super Fund will not be able to cover all of the increasing cost.
Watts said a possible tax exemption for the Fund “could free up more funds for retirement savings”. But the Government could also lower its annual contribution and make the tax exemption fiscally neutral.
Finance Minister Nicola Willis said it was too early to say which option the Government might prefer, when asked about it at Parliament on Wednesday.
Not so charitable
Another fiscally significant tax change in the new work programme will be a review of “elements of charities and not-for-profits” which also enjoy income tax exemptions.
Some people are uncomfortable with commercial businesses, such as Sanitarium, not having to pay taxes simply because they are owned by a church, iwi, or other charitable group.
The Act Party campaigned on requiring charities to split their commercial operations into a separate entity which had to pay tax on any income not passed over to the charitable entity.
Willis said she did not know how much revenue the changed rules could bring in.
“That depends on what policy choices we make. I have been open about the fact that we think there are some loopholes in that area, which is why we are taking advice,” she said.
Watts will also look at policies to help Inland Revenue reduce tax debt and collect repayments from overseas student loan borrowers, both of which may boost revenue a little.
Other tax settings set to be reviewed are fringe benefit tax, capitalisation settings for infrastructure, foreign investment fund rules, and GST charges on joint ventures.
An earlier verison of this story said Super Fund contributions came from the operating allowance, when it actually comes from the capital allowance.
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