Treasury Sec calls for new property tax

John Whitehead. Photo / Kenny Rodger

Treasury Secretary John Whitehead today risked the wrath of property investors by suggesting New Zealand address the long standing issue of taxing capital gains from property investment.

In a speech to the Institute of Directors, he called for a debate about "significant adjustment and change" so the economy can emerge strongly from the current recession.

He focused on taxation, regulation, the role of the public sector and making New Zealand an attractive investment destination.

"At the risk of being chased down by an angry crowd with pitchforks and flaming torches, yes this should include consideration of moving the boundaries to tax more capital gains -- for example on investment property -- and shifting more of the tax base towards consumption," he said.

Capital gains, or property taxes, would encourage investment into productive activity.

Also, New Zealand's company tax rates were at the upper end of the scale by the standards of the OECD and other small open economies.

"The pressure on us will be even stronger if the review of Australia's tax system currently under way leads to further company tax cuts across the Tasman."

The call for more fundamental policy changes comes at a time when the Government has been seeking advice outside Treasury and after a budget that was seen as tackling immediate fiscal and economic pressures.

Whitehead said that for New Zealand to come out of the recession stronger than other countries it had to tackle long standing constraints on growth.

"Our judgment is that many of New Zealand's current policy settings will not deliver the performance we need," he said.

An era of cheap credit was over and investors were more risk averse. New Zealand needed to work much harder to attract foreign investment, Mr Whitehead said.

The Government is reviewing the Overseas Investment Act, the Building Act and the Resource Management Act, with the aim of removing barriers and improving productivity.

Whitehead suggested creating independent entities to assess the costs and benefits of policies and regulation.

"This is one of the roles the Productivity Commission plays in Australia," he said.

Commenting on the role of the public sector, he said any further spending by it needed to be justified.

"Put simply, we need to shift the onus of proof and focus government spending where the benefits are greatest".

There were opportunities to do things better in the public sector, in the international environment, in the tax environment and in the regulatory environment.

"The time to grab these opportunities is now,"' he said.

- NZPA