New Zealand has been bucking a global trend towards higher taxes as other countries raise money to pay pandemic debts, ageing populations, and military upgrades

As New Zealand battles to balance its budget through spending cuts, a new OECD report finds many other countries have been raising taxes in the aftermath of the pandemic.

The OECD released its 2025 Tax Policy Reforms report on Friday. It found more countries increased major taxes in 2024 and 2023 than cut them, as governments unwound pandemic relief and faced up to budgetary pressures.

“High levels of debt coupled with significant emerging spending needs relating to climate change, ageing and, in some countries, increased defence spending, has meant that jurisdictions of all income levels have adopted strategies to mobilise more revenues,” it said.

Some of the 86 countries in the report have increased major taxes such as value added tax or personal and corporate income tax, while others have imposed excess profit taxes. 

The majority of countries made no major changes to their headline taxes, but among those that did, there were more increases than reductions. 

The report said governments often chose to increase top income and capital tax rates to fund relief for young workers, families, and the elderly. But social security contributions also went up in many places, driven by health and ageing costs.

Corporate income taxes had been trending lower for decades but OECD countries reported small net increases in both 2023 and 2024.

“While many governments continued to prioritise support for investment, there was a notable pivot towards revenue mobilisation, particularly through rate increases,” the report said. 

The rates increased but the base also narrowed with many governments offering tax breaks for companies making investments in strategic sectors, such as energy or technology. 

“Questionnaire responses indicated that raising revenue was the most common objective behind recent corporate tax reforms,” the OECD report said.  

“However, many jurisdictions also aimed to promote economic recovery, boost private sector investment, and support innovation and employment. This reflects the trade-off policymakers face in balancing the need for fiscal consolidation with the imperative to stimulate long-term growth.”

Temporary tax relief measures established during the pandemic and period of high inflation, such as reductions in fuel levies or consumption taxes, are also being reversed as countries look to raise more revenue.

The OECD report said tax reforms had a range of goals but were mostly implemented to raise more revenue to fund defence, an aging population, and cover the costs of covid-related debt. 

Recent examples include higher capital gains tax rates in the United Kingdom, increased corporate taxes in Iceland, and hefty import taxes in the United States.

Impossible hat trick

New Zealand faces this same cocktail of budgetary pressures. An increase in debt during the pandemic now requires regular interest repayments, the baby boomer generation are hitting retirement, and its defence force is being strengthened in sync with Western allies. 

The former Labour Government also boosted spending in a number of areas—such as health, welfare and social housing—which it thought had been systemically underfunded. 

This appeared affordable when the economy was running above capacity and was generating extra tax revenue. However, once inflation rose and the economy cooled it became apparent the Crown was spending significantly more than it was earning.

The National-led coalition was elected in 2023 by promising to fix this budget imbalance, while also cutting taxes and pulling the country out of the post-inflation recession.

Time has shown this to be a hard mix of goals. Tax cuts have made it harder to balance the budget, job cuts have hurt household confidence, and the downturn has worsened as the Government pulled back in some sectors before the private sector was ready to take over.

An RNZ–Reid Research poll published on Tuesday found 38% of people blame the governing Coalition for the weak economy, compared to just 31% who mostly blame Labour. 

Another 24% said both were equally responsible, 5% said neither, and the rest didn’t know.

Economic activity data for the three months ended June 2025 will be published this week and are likely to show the economy was still in recession. It will be confirmation that the recovery in 2025 has been much more limited than initially expected.

The Coalition blames this largely on global uncertainty from US President Donald Trump’s trade policies, but maintains the economy will continue to gain momentum over summer.

Teeny-tiny capital gains tax 

Now in opposition, the Labour Party has to find its own policy proposals for the 2026 election campaign which would both balance the budget and help the economy grow more quickly.

But unlike the Coalition it doesn’t plan to also promise lower taxes. The party is reportedly honing in on some kind of capital gains tax, aimed at raising some extra revenue. 

Leader Chris Hipkins said on Tuesday the policy was still under discussion but would be announced before the end of the year. The NZ Herald reported the party is finalising details of a limited capital gains tax, targeted primarily at property investors. 

This aligns with Hipkins’ answers to questions about tax, which often revolve around designing a policy which will incentivise more productive investments.

Broadly taxing capital gains of all kinds would arguably discourage this kind of investment, although it would at least level the playing field with residential speculation in some cases.

A wealth tax is also seen as discouraging investment. Targeting just investment properties would be politically popular, incentivise other investments, and raise some revenue.

However, it wouldn’t be a huge cash grab and a hypothetical Labour budget might have to unwind some other Coalition tax breaks, such as Investment Boost, to get back into balance.

Treasury documents showed there was an $8.5 billion gap between the $27.9 billion forecast cost pressures in the public services and the $19.7 billion of reprioritisation options. 

This would be hard to achieve without negative trade-offs, as much of the “low hanging fruit” had already been cut, and the government should keep an open mind on taxes, it said. 

While the National-led government has promised not to impose any major new taxes, it has been seeking revenue elsewhere. It plans to shift more services onto ‘user pays’ models with higher levies and fees. 

This includes paying for medicine prescriptions, tolling new highways, increasing fees for vehicle registration, and charging tourists larger entry fees.