On 23 November 2017, the Government released much anticipated details of its Tax Working Group, which will consider whether the tax system operates fairly and promotes the right balance between a productive economy and speculation (among other things). The Tax Working Group will be chaired by former Labour finance minister Sir Michael Cullen, with members of the group to be announced at a later date.
What issues will be considered?
The Tax Working Group has a broad focus on the fairness and integrity of the tax system.
Most significantly, the group's scope includes consideration of a capital gains tax on land and other capital assets, other than the family home. Consideration of a progressive company tax is also within the scope of the group, as is GST on low value imports.
Changes to the current rates of income tax and GST, introducing an inheritance tax, further tax changes impacting the family home and working for families are outside the scope of the Tax Working Group's programme.
Measures to counteract base erosion and profit shifting (BEPS) are also outside the scope of the Tax Working Group, as they are being dealt with separately through the IRD's existing initiatives.
Same old story?
This is the second Tax Working Group to be formed in recent times. The National Government's most recent Tax Working Group (which reported back in 2010) was in favour of tax rate alignment and specifically considered the introduction of a low-rate land tax. This Tax Working Group expressed concerns about the practical issues (e.g. lock-up) associated with a capital gains tax.
The Labour-led Government has stated that its Tax Working Group will focus on issues that reflect the current Government's priorities, although there appears to be significant overlap in the scope of both groups.
What should we expect?
Given that the Labour Party initially campaigned on the basis that it would introduce a capital gains tax, the Tax Working Group might be expected to focus much of its attention on whether such a tax is desirable or required. It is clear that if such a tax was recommended by the Tax Working Group, it should not apply to the family home. It appears to be within the mandate of the Tax Working Group to consider whether any proposed capital gains tax should apply to farms and other land not under the family home.
The Tax Working Group is expected to provide final recommendations by February 2019, however any law changes would not come into force until the 2021 tax year (depending on the outcome of the next election). An exception to these timeframes may apply if the Tax Working Group recommends changes to the GST treatment of low value imports. Changes in this area could be implemented sooner.
Only time will tell whether the Tax Working Group's work will form the basis for the most significant extension of the tax base since the introduction of GST.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.