Prime Minister Jacinda Ardern announcing the Government has rejected a proposed capital gains tax at Parliament, Wellington. 17 April, 2019. NZH photograph by Mark Mitchell.
Prime Minister Jacinda Ardern announcing the Government has rejected a proposed capital gains tax at Parliament, Wellington. 17 April, 2019. NZH photograph by Mark Mitchell.
Rejecting the Tax Working Group's proposals has left the Government's revenue strategy "in tatters", says EY Tax Policy leader David Snell.
Snell says the Government needs use the Budget on May 30 to outline a new direction for tax policy, to hit its own Budget Responsibility targets.
"The Budget Responsibilityrules, ensuring a progressive system that's fair balanced and promotes long term sustainability and productivity, we don't have a program that's going to deliver that," he said.
"That was all hinged around a Tax Working Group," Snell said. "So there has to be some steps towards a programme that will deliver that."
Already challenging in the short term, the over-all revenue position was only going to get more difficult as you looked out beyond the four year Treasury forecast period, Snell said.
In the short term the Capital Gains Tax wouldn't have raised any revenue.
The pressing problem this year was that Treasury forecasts from last December were starting to look quite optimistic, he said.
"The medium to long term issue is where the Capital Gains Tax would have started to raise significant revenue, that's not going to be there anymore," he said.
David Snell, New Zealand Tax Policy Leader, EY Picture supplied
But there were still some pathways for change open to the Government in this Budget, Snell said.
"Assuming the Budget responsibility rules remain unchanged, one thing they will have to look at is the unfinished business around the Research and Development tax incentive."
If you we were looking to use the tax system to have some productivity enhancing measures, then the current scheme was only doing half the job, Snell said.
"Because its not, in general, providing refund ability for loss making businesses. So I think they've got to look at finishing the job there with an research and development 2.0 package."
Other issues that could be looked at included rules for investment in nationally significant infrastructure projects and dealing with cross-border employment issues.
"I could also see a big tax administration push," Snell said.
With huge flow of information coming into IRD since the transformation project an the increasing ability to analyse the data with AI technology there was the opportunity for big push on the collection of tax "looking quite closely at the hidden economy".
"So there are still things that can be done with tax, even though the headline recommendation has been ruled out," he said.
"There has to be some newly explained revenue strategy, potentially heading down some of those directions."
That included some foreshadowing how they planned to link tax to environmental and sustainability goals in the medium to long term.
"I'd have thought that could be another building block of a new tax policy working program," he said.
Snell had been supportive of a Capital Gains Tax in principle and was surprised by the extent of the Government backdown.
"We thought, at an absolute minimum, we'd see residential investment property brought into the net, with commercial property potentially as the next step," Snell said in April after the PM ruled out any form of CGT.
EY is one of the world's "big four" tax and professional services firms.
