Thomas Pippos: Whetting an appetite for change

Thomas Pippos, managing tax partner at Deloitte.

One of the last tax taboos, an explicit capital gains tax, doesn't generate the opposition it once did, writes Thomas Pippos

There are two main tax themes coming out of the 2013 Mood of the Boardroom survey. The integrity and transparency of the tax system are as important as ever, and the only constant remains an appetite for change.

With this backdrop in mind the new Minister of Revenue, Todd McClay, is presented with a framework in which he can start to stamp his mark, as unsurprisingly, 68 per cent of the respondents effectively believe that the jury is still out as to whether the change at the ministerial helm will alter the speed and direction of tax policy travel.

The context, of course, is shaping public opinion while filling the longstanding shadow vacated by Peter Dunne, a Cabinet minister who held the Revenue portfolio since 2005 and prior to that in 1996, in successive Governments representing both the left and right of the centre political divide.

Somewhat usefully therefore the survey suggests some areas of focus for the new minister, including one that while high-profile, doesn't really pose a high degree of difficulty.

That is, dealing with the Base Erosion and Profit Shifting (BEPS) debate that is playing out globally with brands such as Google and Starbucks.

In terms of this debate, somewhat alarmingly, only 8 per cent of respondents are fully conversant with the topic with the remainder largely not aware (51 per cent) or only reasonably aware (41 per cent).

Consistent with this over 60 per cent of respondents either didn't know or understand that in many respects the issue has its genesis in explicit tax policy reforms developed by jurisdictions like the United States and the United Kingdom, not tax havens, that are actually designed to be arbitraged (and are being arbitraged) by multinational corporations (MNCs).

Notwithstanding the knowledge void on this topic, the majority perception is that this global debate is still relevant from a NZ perspective. Fifty per cent of respondents believe that the tax paid by certain MNCs in NZ is inappropriately low (with only 15 per cent believing that this is not the case). The clear majority (over 60 per cent) are unsure whether this is because of explicit tax arbitrage opportunities NZ provides, and 58 per cent are unsure as to whether substantive tax policy reform is required.

Leading and managing the New Zealand response to the most public tax policy debate currently playing out globally provides a unique opportunity for the new minister to quickly and positively stamp his mark early in his first term.

The reality is that in many respects the BEPS debate provides a benign immersion into NZ tax policy that is likely to be well received if appropriately handled. This involves materially raising public awareness levels and ensuring nothing precipitous is progressed with. Considerably more challenging for any minister is addressing areas of substantive tax policy reform. Though respondents largely believe (54 per cent) that substantive reform is not imminent, there is still a large group (38 per cent) that are looking for further change on the tax front.

By some margin, the clearest majority of respondents (72 per cent) don't see a change in the GST rate as a priority. This could be for any number of reasons including its recent increase to 15 per cent and the political difficulty of any further change, notwithstanding it is one of our most efficient taxes. Dealing with high effective marginal tax rates fails to get a majority following (38 per cent), potentially due to the difficult policy issues raised and because for many who are not impacted by this issue, it's a more invisible tax. The appetite for R&D reform (58 per cent) and some action on the corporate tax rate (54 per cent) does however engender clear majority support when compared to the views against and unsure. Unsurprisingly, there is also a clear signal that there is no appetite for any increase in the highest marginal tax rate, currently an unambiguous part of a Labour-led Government tax policy agenda.

One of the last tax taboos, an explicit capital gains tax, doesn't generate the type of opposition it once did. In fact, the majority of those that voted either for or against it saw an explicit capital gains tax as appropriate to set the right policy settings and/or to facilitate a drop in other tax rates. Given the continuous erosion of the capital-revenue boundary by successive Governments, and the heightened debate around fairness and equity in the tax system, the response from the survey isn't surprising.

Whether this provides an area of common ground between many respondents and the current Labour Opposition is moot, given the extent of the philosophical gap in many other areas, including around increasing the highest marginal tax rate.

Common ground for all can be found, however, around tax integrity, with a resounding majority of respondents (71 per cent ) aware of the Inland Revenue's Compliance Focus in the High Net Wealth sector and with 58 per cent comfortable with the Inland Revenue's focus here.

All in all, a refreshingly predicable set of outcomes on all substantive fronts.

• Thomas Pippos is Chief Executive of Deloitte New Zealand.