Cut income tax, raise GST - report

Photo / Martin Sykes

The Government has been advised to consider "significant changes" to make New Zealand's tax system fairer and more effective.

"Put simply, the tax system is broken and needs to be fixed. We've suggested a number of ways this can be done," said Professor Bob Buckle, chair of the tax group which released its report today.

Raising GST to 15 per cent and cutting personal income taxes are key recommendations in the report.

Buckle said there was a "once-in a generation chance for New Zealand to get a world-class tax system , one that's set up to meet the challenges of the 21st century".

Keeping the current system is not an option, says the report.

"The Group's strong view is that reform is necessary if New Zealand is to have a fair tax system that minimises the costs of raising taxes, reduces barriers to productivity and growth and positions it well for future challenges," said Buckle.

Finance Minister Bill English and Revenue Minister Peter Dunne have just issued a press statement, saying they will "carefully consider" the report.

"For ordinary New Zealanders, we're particularly keen to ensure that our tax system rewards effort, encourages savings and helps families to get ahead," he said.

Any changes would have to meet tests of equity and fairness, alongside delivering benefits for households and the economy, said English. "And given that we face another six years of Budget deficits, they need to be broadly fiscally neutral."

The group's report - one of several reviews to have reported back to the Government in recent months - will be considered in coming months as part of Budget decision making, said English.

Peter Dunne said the group had produced a comprehensive report and, in the process, it had helped generate constructive public debate.

"I note the Working Group's concerns regarding the misalignment of tax rates which encourages the use of trusts and companies, with a tax rate of 33 per cent and 30 per cent respectively, to shelter income that would otherwise be taxed at the higher personal tax rate of 38 per cent," he said.

"This is inherently unfair to the wage and salary earner who is then left to bear a disproportionate share of the personal tax burden."

He also said he was concerned at the manipulation of family income in some instances to obtain Working for Families tax credits.

Prime Minister John Key yesterday indicated the Government was open to reform which traded personal income tax cuts for some form of tax on investment property.

Key also said he could not rule out an increase to GST.

The main recommendations of the working group are:

• Align the top personal, company and trust tax tax rates.

• Make the company tax rate competitive with other countries' rates, particularly Australia's.

• A widespread reduction of personal tax rates and increasing GST to 15 per cent.

• Most members of the group also supported a "low rate land tax".