ELECTION 2020: TAX POLICIES - PWC
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Tax Tips | September 2020
Election 2020:
Tax policies
With Labour’s tax policy release on Wednesday 9 September, we now
have a better view of the tax policies that each party that might form
part of our next government will take to the election on 17 October 2020.
When the Labour coalition government was formed in late 2017 and
announced the Tax Working Group (TWG), it looked like 2020 would be an
election dominated by tax – specifically, a realisation-based capital gains
tax that had long been advocated by Labour and the Greens. But that has
changed dramatically.
In April 2019, NZ First announced that it would not support a capital gains tax
and, as a result, Prime Minister Ardern ruled out introducing a capital gains
tax in any government that she led. Then, earlier this year, the COVID-19
pandemic struck, and the policy focus shifted to the public health response
and broader economic policies. Nevertheless, tax is still an important policy
choice at this election, particularly in the light of the tsunami of public debt
surging in as the Government cushions the economic hit of the pandemic
with fiscal policy.
To help you think about the different policies and their impacts, we’ve briefly
summarised the tax policies announced so far and made some observations.
The TWG noted that tax policy should be considered against a whole of
system perspective taking into account the Living Standards Framework and,
in New Zealand, a Te Ao Māori perspective on wellbeing. Inherently, those
judgements can be political. Our observations are not intended to be political.
Rather, they are framed through a conventional tax policy lens.
pwc.co.nzGreens
$9.355bn to $10.355bn p.a. TAX
Revenue impact
Tax policy (annual)¹ PwC policy-based observations
A new wealth tax levied at 1% per +$8bn to $9bn Would raise new tax revenue and make the tax system more
annum on net wealth over $1m and progressive.
2% on net wealth over $2m. Two key design problems mean that wealth taxes are not
common around the world:
1. The difficulty of valuing unlisted businesses on an annual
basis
2. The fact that the tax is imposed on an unrealised basis
meaning that cashflows to pay the tax may not be
available.
Create two new higher income tax +$1.3bn Would raise new tax revenue and make the tax system more
bands: progressive.
• 37% on income from $100k to Three key policy issues:
$150k; and 1. Further increases the tax burden on labour income while
• 42% on income over $150k. not addressing untaxed capital gains.
2. At the margin, may reduce incentives to work and save.
3. Breaks the long-standing broad alignment of the
company, trust, and top personal tax rates, which may
lead to recharacterisation of income to lower rate options,
leading to the need for stronger and more complex
protective rules and tax administration. This increases
compliance costs.
If the OECD cannot agree a multilateral +$0.055bn Would collect some income tax from the so called
solution to tax digital revenues by “weightless” digital revenues derived from New Zealand that
31 March 2021, then impose a are largely currently not taxed here.
unilateral digital services tax of 3% of Three key policy issues:
gross revenues from digital services
consumed in New Zealand. 1. Risks exposing New Zealand to trade access retaliation
from the United States.
2. Tax likely to be passed through to New Zealand
consumers, raising prices.
3. Abandons the longstanding policy convention of taxing
profits for taxing gross revenues and this destabilises the
international tax environment.
¹ Based on the Parties’ own estimates where available, not verified by PwC. Tax Tips | Election 2020: Tax Policies | 2NZ First Not costed but est. $0.5bn p.a. TAX
Revenue impact
Tax policy (annual) PwC policy-based observations
No tax rate rises N/A If a strong economic recovery can get established post
COVID-19, then tax rate rises may not be necessary
for the tax system to generate sufficient revenue for the
Government. That was the experience post-GFC between
2012 and 2017.
Accelerated depreciation for Not costed Effectively a tax subsidy to drive investment decisions.
new investment Could be justified in the short term if there are clear areas
of under-investment where new investment would have a
beneficial impact for the wider economy.
May result in uneconomic and undesirable investment at the
margin as the tax subsidy tops up the below market return.
“Give it a go” scheme to provide tax Not costed A tax subsidy intended to influence business decision-
concessions for start-ups in certain making. May create positive regional benefits. The concern
rural and regional New Zealand would be that some businesses that are established based
on a tax subsidy may not be viable once that subsidy is
withdrawn. Those non-viable businesses may consume
capital and resources that, without the intervention, may
have been deployed to more sustainable investments that
have a greater economy-wide benefit.
Immediate deduction for asset Not costed Effectively a tax simplification measure for small businesses.
purchases up to $3k for SMEs with Justifiable on a compliance cost basis.
turnover of less than $1m
ACT
$9.6bn p.a. TAX
Revenue impact
Tax policy (annual) PwC policy-based observations
A temporary GST cut from 15% to -$6.6bn² May result in a reduction in consumer prices and stimulate
10% expiring on 30 June 2021 demand with positive economic benefits.
Cannot be certain that the full reduction will be passed on
to consumers.
Significant revenue cost and not targeted.
May lead to complexity and high compliance costs around
the time of supply of goods and services as the rate
reduction is introduced and then expires.
A permanent income tax cut reducing -$3bn Makes the income tax scale more progressive by lowering
the 30% marginal rate to 17.5% the tax burden on incomes below $70k.
Reduces the very high effective marginal tax rates
experienced by some lower income earners in this band
($48k to $70k) as income support (Working for Families,
accommodation allowances, etc) abates.
Softens the impact of the last ten years of fiscal drag
(or bracket creep).
Improves the incentives to work, develop skills and save.
Significant revenue reduction that will need to be funded by
reduced spending or increased borrowing.
² ACT’s annual estimate but assuming this is only legislated from say
1 January 2021, then it’s likely to cost a lot less, say $3.3bn. Tax Tips | Election 2020: Tax Policies | 3National
Not costed but est. $0.3bn – $0.8bn p.a. TAX
Revenue impact
Tax policy (annual) PwC policy-based observations
No new taxes N/A If a strong economic recovery can get established post
COVID-19, then tax rate rises may not be necessary
for the tax system to generate sufficient revenue for the
Government. That was the experience post-GFC between
2012 and 2017.
Small business tax package: A package of tax compliance saving measures that would
• Increase the low-value asset be welcomed by business.
deduction from $5,000 to $150,000 Based to a large extent on recommendations of the
for two years. 2018/19 TWG.
• Increase the provisional tax Likely modest revenue cost except for:
threshold from $5,000 to $25,000.
1. The $150k asset deduction (the TWG was advised
• Raise the GST registration in 2018 that the revenue cost of lifting the low-value
threshold from $60,000 to $75,000. asset write-off from $500 to $1,000 was $0.45bn over
• Allow tax losses to be carried four years);
forward even after a change 2. The less than $3,000 tax book value asset write-off
in shareholder if the business (the TWG was advised in 2018 that the revenue cost of
continues is carried on in a allowing assets with a tax book value below $1,000 to be
similar manner. written-off could be $1.9bn over four years).
• Review UOMI rates charged by
Inland Revenue to make them fairer
for businesses.
• Raise the GST tax invoice threshold
from $50 to $500.
• Consolidate the number of
depreciation rates to make tax
depreciation simpler.
• Review increasing depreciation
rates for investments in energy
efficiency and safety equipment.
• Allow the immediate deduction of
the remaining tax book value of any
asset below $3,000.
• Change the due date of the second
instalment of provisional tax for
31 March balance dates from
15 Jan to 28 Feb.
Tax Tips | Election 2020: Tax Policies | 4Labour
Not costed but est. $0.55bn – $0.63bn p.a. TAX
Revenue impact
Tax policy (annual) PwC policy-based observations
Introduce a new top income tax rate +$0.55bn p.a. Will raise new revenue and increase the progressivity of the
of 39% on personal, individual income tax system. The top 2% of income earners (about 70,000
over $180,000 people) will pay more personal tax.
Three key policy issues:
1. Makes the current distortion worse by further increasing
the tax burden on labour income while not addressing
untaxed capital gains.
2. At the margin, may reduce incentives to work and save.
3. Breaks the long-standing broad alignment of the
company, trust and top personal tax rates which will lead
to recharacterisation of income to lower rate options,
leading to the need for stronger and more complex
protective rules and tax administration. This increases
compliance costs.
Freeze on fuel tax increases Marginally positive for equity as fuel taxes are
highly regressive.
No new taxes to be introduced and May let economic growth get firmly established before
no further tax increases in next term higher taxes are considered.
of government
Close tax loopholes so multinational +$0.03bn – Would at least collect some income tax from the so-called
corporations pay their fair share – $0.08bn p.a. “weightless” digital revenues derived from New Zealand that
re- announced a potential unilateral are largely currently not taxed here.
digital services tax Three key policy issues:
1. Risks exposing New Zealand to trade access retaliation
from the United States.
2. Tax likely to be passed through to New Zealand
consumers, raising prices.
3. Abandons the longstanding policy convention of taxing
profits for taxing gross revenues and this de-stabilises the
international tax environment.
Tax Tips | Election 2020: Tax Policies | 5Tax Update 2020
Join us online on 23 October after New Zealand’s general election for our virtual Tax Update. We will focus on recent
key tax changes and present them to you in our traditional Q&A style.
Our subject matter experts will cover the following topics:
• Future direction of tax: Geof Nightingale, a tax policy expert and a member of the Government’s recent Tax
Working Group, will share his view on what tax changes are likely following the election result. Listen closely, and
start planning!
• COVID-19 tax relief and changes: Are you across all the latest tax opportunities? We will cover loss carry-back,
low-value asset write offs, proposed loss continuity changes, GST adjustments, and tax payment issues.
• Property: Significant changes continue to be made to the taxation of property, and new issues hit Inland
Revenue’s radar: the return of building depreciation, healthy homes expenditure, GST when converting from short
to long term renting, GST on transfers of property between associated persons, and purchase price allocation.
To find out more, click here
Geof Nightingale
Partner
T: +64 21 940 346
E: geof.d.nightingale@pwc.com
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