Key hints at property tax, GST rise not ruled out

Prime Minister John Key. Photo / Mark Mitchell

On the eve of release of the long-awaited report on taxation, John Key yesterday indicated the Government was open to reform which traded personal income tax cuts for some form of tax on investment property.

The Prime Minister also said he could not rule out an increase to GST.

A working group made up of tax accountants, officials and academics has been reviewing the options for substantial reform of the tax system for nearly a year, and is to release its report today.

Mr Key has seen the report, and said at his post-Cabinet press conference yesterday that "not all of the options will be acceptable, but nor will all of them be rejected".

Asked if he could rule out an increase in GST, Mr Key said "no" then left the podium, saying he was not going to engage in a game of 20 questions.

The Government's focus this year would be on lifting the economy's performance and the incentives provided by the tax system could play a part in that. Fairness was also important.

The Government would like to lower personal taxes, he said, and that could be done in a wide range of ways within a package of tax changes which was revenue-neutral overall.

He agreed that big cuts to personal taxes rates would require a substantial broadening of the tax base.

Mr Key referred to the working group's discovery that the $200 billion or so New Zealanders have invested in rental property yielded minus $150 million overall in revenue to the Government in 2008, because landlords were able to use losses on their property investments as a tax shelter.

That did not seem fair to other taxpayers or the right incentive for the tax system to give to investors, Mr Key said.

But he warned against making assumptions about how the issue might be addressed, saying the tax working group had considered land tax, capital gains tax and depreciation deductions.

Final decisions about tax changes will not be made until the Budget, by which time the Government will know the recommendations of an equivalent tax review in Australia headed by Treasury Secretary Ken Henry, particularly on company taxation.