Government responds to TWG recommendations

The majority of the TWG recommends a broad extension of the taxation of capital gains.

If a broad extension of capital gains taxation was adopted, the TWG recommends that it have the characteristics detailed in Volume II of the TWG report.

Greenhouse gases

a) Support for a reformed Emissions Trading Scheme (ETS) as the centrepiece of emissions reduction efforts, but there should be greater guidance on price and auctioning emissions units to raise revenue.

b) Periodic reviews of the ETS to ensure it is fit for purpose.

c) Emissions should face a price, including from agriculture, either from ETS or a complementary system.

Water abstraction and water pollution

a) Tax instruments could be considered to address water pollution and water abstraction challenges.

b) Further develop tools to estimate diffuse water pollution.

c) Introduce input-based tax instruments, including on fertiliser, if significant progress is not made in the near term on output-based approaches.

Note work already underway – The Water Taskforce is working to achieve improvements in water quality.

There will be no resource rentals for water in this term of Parliament as per the Coalition Agreement.

These are no plans in this term of Parliament to introduce input-based instruments, including on fertiliser (i.e., a fertiliser tax).

Solid waste

a) Supports the Ministry for the Environment’s review of the rate and coverage of the Waste Disposal Levy.

b) Expand the coverage of the Waste Disposal Levy.

c) Reassess the negative externalities associated with landfill disposal in New Zealand to ascertain if a higher levy is appropriate.

d) Review hypothecation of the Waste Disposal Levy to ensure funds are being used in the most effective way to move towards a more circular economy.

Transport

Supports current reviews by the Government and Auckland Council into introducing congestion pricing.

Consider restoring depreciation deductions for buildings if there is an extension of the taxation of capital gains (subject to fiscal constraints). To manage the fiscal costs, the Government could reinstate building depreciation on a partial basis for:

a) seismic strengthening only;

b) multi-unit residential buildings; or

c) industrial, commercial, and multi-unit residential buildings.

Examine the following options to reduce compliance costs:

For immediate action:

a) Increase the threshold for provisional tax from $2,500 to $5,000 of residual income tax.

b) Increase the closing stock adjustment from $10,000 to $20,000 - $30,000.

c) Increasing the $10,000 automatic deduction for legal fees, and a potential expansion of the automatic deduction to other types of professional fees.

d) Reduce the number of depreciation rates, and simplifying the process for using default rates.

Subject to fiscal constraints:

e) Simplify the fringe benefit tax, and simplifying (or even remove) the entertainment adjustment.

f) Remove resident withholding tax on close company-related party interest and dividend payments, subject to integrity concerns.

g) Remove the requirement for taxpayers to seek the approval of the Commissioner of Inland Revenue to issue GST Buyer Created Tax Invoices.

h) Allow special rate certificates and certificates of exemption to be granted retrospectively.

i) Increase the period of validity for a certificate of exemption or special rate certificate.

j) Remove the requirement to file a change of imputation ratio notice with Inland Revenue.

k) Extend the threshold of ‘cash basis

l) person’ in the financial arrangement rules which would better allow for the current levels of personal debt.

m) Increase the threshold for not requiring a GST change of use adjustment.

Consider encouraging the savings of low-income earners by carrying out one or more of the following:

a) Refund the Employer Superannuation Contribution Tax (ESCT) for KiwiSaver members earning up to $48,000 per annum. This refund would be clawed back for KiwiSaver members earning more than $48,000 per annum, such that members earning over $70,000 would receive no benefit.

b) Ensure that a KiwiSaver member on parental leave would receive the maximum member tax credit regardless of their level of contributions.

c) Increase the member tax credit from $0.50 per $1 of contribution to $0.75 per $1 of contribution. The contribution cap should remain unchanged.

d) Reduce the lower PIE rates for KiwiSaver funds (10.5% and 17.5%) by five percentage points each.

Consider for inclusion on work programme (TPWP)

This work would sit alongside the Government’s broader work on KiwiSaver, which includes the default provider review and a consideration of options to increase KiwiSaver uptake and contributions.

Recommendations on personal tax are dependent on the objectives of the Government:

a) If the Government wishes to improve incomes for very low income households, the best means of doing so will be through welfare transfers.

b) If the Government wishes to improve incomes for certain groups of low to middle income earners, such as full-time workers on the minimum wage, then changes to personal income taxation may be a better option.

Note work already underway – additional operational funding for Inland Revenue is being put towards increasing investigations capability, public awareness campaigns, and new policy initiatives.

Inland Revenue officials are undertaking targeted consultation on a number of proposals to expand the scope of the Schedular Payments rules and address non-compliance of self-employed workers. An update on this work will be provided in the second half of 2019.

Inland Revenue should have the ability to require a shareholder in a closely-held company to provide security to Inland Revenue if:

a) The company owes a debt to Inland Revenue; and

b) The company is owed a debt by the shareholder; and

c) There is doubt as to the ability/and or the intention of the shareholder to repay the debt.

Further action in relation to the hidden economy, including:

a) An increase in the reporting of labour income (subject to not unreasonably increasing compliance costs on business).

b) A review of the measures recently adopted by Australia in relation to the hidden economy, with a view to applying them in New Zealand.

c) The removal of tax deductibility if a taxpayer has not followed labour income withholding or reporting rules.

Further measures to improve collection and encourage compliance, including:

a) Making directors who have an economic ownership in the company personally liable for arrears on GST and PAYE obligations (as long as there is an appropriate warning system).

b) Departure prohibition orders.

c) Aligning the standard of proof for PAYE and GST offences.

The Government should:

a) Fund oversampling of the wealthy in existing wealth surveys.

b) Include a question on wealth in the census.

c) Request Inland Revenue regularly repeat its analysis of the tax paid by high wealth individuals.

d) Commission research on using a variety of sources of data on capital income, including administrative data, to estimate the wealth of individuals.

The following principles should be applied in public engagement on tax policy:

a) Good faith engagement by all participants.

b) Engagement with a wider range of stakeholders, particularly including greater engagement with Māori (guided by the Government’s Māori/Crown engagement framework).

c) Earlier and more frequent engagement.

d) The use of a greater variety of engagement methods.

e) Greater transparency and accountability on the part of the Government.

Note work already underway – the Government added a review of charities and non-profit organisations to the TPWP in 2018.

Department of Internal Affairs (on behalf of the Minister for the Community and Voluntary Sector), is currently modernising the Charities Act 2005.

Consider taxing vacant land held by land-bankers as a high priority for inclusion on work programme (TPWP).

The Government intends to direct the Productivity Commission to include vacant land taxes in its inquiry into local government funding and financing.