The government today shied off any radical changes to the country’s tax system, ruling out all the more difficult options proposed by the Tax Working Group.
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A land tax is off the table, so is a risk free rate of return tax on residential property, Prime Minister John Key said in his opening statement to Parliament this afternoon.
So, too, is a “comprehensive” capital gains tax. That could turn out to be weasel words but it is more likely to be carefully chosen words to reflect the fact New Zealand does already have a number of small, specifically targeted capital gains taxes.
The government will include more specific tax changes aimed at property investors in the Budget on May 20 but there is no hint in the statement.
“A land tax is effectively a lump sum tax on people who own the land at the time the tax is introduced, would only fall on people who hold their wealth in one particular form, and would create cashflow problems for many landowners, especially those with lower incomes,” Mr Key said.
An RFRM tax has “some conceptual appeal” but would also create cashflow problems for taxpayers as it is applied at a fixed rate – probably 5% of the value of the property, adjusted for the taxpayer’s marginal tax rate – every year.
And while a capital gains tax is progressive and extends the tax net more widely to areas not currently covered, it “would make the tax system more complex to administer and comply with and may encourage taxpayers to hold on to assets longer simply to avoid tax.”
As for what the government will do, all Mr Key said was that there were gaps in the tax system “around property investments where income is being derived but, in aggregate, no tax is being paid – in fact the government is actually losing revenue in this sector.
“We will therefore be making changes to the way property is taxed, which will result in increased government revenue and more fairness for taxpayers.”
Those changes will be in the Budget on May 20, and will be implemented either with the Budget or shortly afterward.
Rob Hosking
Tue, 09 Feb 2010