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Government announces terms of tax inquiry

31 July 2000

Revenue Minister Michael Cullen today announced the terms of reference of the Government's forthcoming tax inquiry. The inquiry will have a broad focus, looking at four questions: whether the tax system can be fairer in its role of redistributing income; how the tax system can be designed to encourage desirable conduct such as work and saving and to discourage such undesirable behaviour as the wasteful use of non-renewable resources; how the level of tax that is reasonably required by the Government for the provision of essential social services can be achieved reliably in the medium and long term; and whether the tax system and tax rates need to be modified in light of new technology and international competition.

The inquiry will be conducted by a four-person panel, still to be announced, that will report to the Minister of Revenue and Minister of Economic Development.

See Minister's media statement.


Hon Dr Michael Cullen
Minister of Revenue

MEDIA STATEMENT

Terms of Tax Inquiry

"The tax inquiry is intended to be architectural in nature. It will examine how the tax structure meets New Zealand's current and future needs," Revenue Minister Michael Cullen said today.

"A top to bottom review is long overdue. The last one - the 1967 Ross Report - pre-dated the global economy, the deregulation of the financial sector, e-commerce and such important social developments as the rise of the two income household and the single parent family.

"These are all significant events carrying huge implications for the fairness and on-going viability of the tax system.

"The Government's decision to commission an inquiry developed out of these changes rather than out of any specific tax reform agenda.

"Indeed we have promised that we will not implement any significant new taxes without first seeking a mandate from the electorate through the 2002 general election," Dr Cullen said.

The inquiry will be independent and has been given a comprehensive brief which allows it to consider all relevant options. Stage One, to be completed by the end of July next year, will involve designing a set of principles to guide tax policy and the general structure of the tax system.

The Government will release this report and will make public its response to the Inquiry's recommendations. Stage Two will be devoted to developing concrete policy proposals for announcement by the Government before the end of the Parliamentary term.

"The Inquiry's focus will be deliberately broad. It will ask the following questions:

  • Can the tax system be fairer in its role of redistributing income? This includes: whether the income tax base should be broadened; the extent to which marginal tax rates should increase with income, wealth and expenditure; the best mix between different tax bases, such as income, consumption, financial transactions and assets.
  • How the tax system can be designed to encourage desirable conduct such as work and saving and to discourage such undesirable behaviour as the wasteful use of non-renewable resources.
  • How can the level of tax that is reasonably required by the Government for the provision of essential social services be achieved reliably in the medium and long term?
  • Do the tax system and tax rates need to be modified in light of new technology and international competition?

"The Inquiry will be conducted by a four-person panel which will report to me and to the Minister of Economic Development, Jim Anderton. Decisions about personnel are still being finalised.

"A provisional budget of $520,000 has been allocated for the exercise. This is not new expenditure. Instead the money has been provided by reprioritising within Vote: Finance.

"A full-time secretary, reporting to the Inquiry Chair, will be appointed. Analytic and secretariat support will be supplied by tax policy officials in Treasury and Inland Revenue. I would expect them to contribute significantly to the Inquiry's work.

"But the inquiry panel will also have the ability and the budget to engage outside experts for advice and assistance on specific issues.

"This is an important exercise which has the potential to lift the standard of the taxation debate in New Zealand and to substitute some of the heat for light," Dr Cullen said.

Contact: Patricia Herbert (04) 471-9412 or 025-270-9013