A regulatory impact statement, published with the bill, showed the Ministry of Foreign Affairs and Trade warned the Government should wait, saying New Zealand risked trade retaliation from the countries where these firms are based, like the United States.
“The Ministry of Foreign Affairs and Trade (MFAT) strongly recommends continuing to wait for a multilateral solution,” officials warned.
Officials warned the tax would be “likely to damage New Zealand’s relations with some international partners if New Zealand were to unconditionally adopt a DST while the OECD solution was still making progress”.
“In addition, a DST may harm our trading environment,” they said.
Officials warned countries could retaliate with tariffs on New Zealand goods. The scale of “retaliatory tariffs” would be difficult to predict, “they can be expected to be proportionate to the DST”, which is expected to raise about $90m a year.
“While we expect tariffs to be a small amount in the context of New Zealand’s total trade, they will be significant for affected exporters,” officials said.
Officials cited the example of France, which introduced a DST that was slightly lower than the amount of revenue France expected to make from the tax.
“[W]hen the US announced its intention to impose tariffs on France in response to their DST, these were valued at US$325 million, compared to estimated DST revenue of US$567 million,” officials said.
“This package was at the upper bound of those prepared against other DST-imposing nations.18 Significantly, the tariffs targeted high value, recognisable French products such as cosmetics and handbags,” they said, suggesting high value recognisably New Zealand exports could be in the gun.
“The US has also prepared tariff packages against other countries which have introduced a DST. These include the United Kingdom, Italy, Spain, Austria, Türkiye [Turkey] and India. The value of these packages ranged from US$16.25 million to US$221.75 million based on DST revenues to be incurred by US firms of US$45 million to US$325 million,” officials warned.
New Zealand has currently signed up to a moratorium against forging ahead with a unilateral DST ahead of 2025 in order to give the OECD talks time to progress.
This moratorium could be extended, however.
Revenue Minister Barbara Edmonds said she still favoured the multilateral solution, and that the bill meant the tax would only come into force in 2025 anyway.
“Our number one preference is still a multilateral solution led by the OECD and we continue to participate in those discussions.
“We have agreed not to impose a new DST before 1 January 2025 as part of the OECD negotiations, and this is written into the legislation (which allows an extension out to 2030 if the OECD makes sufficient progress towards implementing its multilateral solution),” she said.
Edmonds said the DST was a “backstop” solution that builds on a “2020 manifesto commitment to find a workable solution to ensure multinational corporations pay their fair share of tax”.
Edmonds said that while the US has threatened tariffs, it has not actually imposed any in relation to the DST.
“New Zealand officials have consulted with international partners to discuss our position.
“There are a number of OECD countries which have implemented DSTs, including: France, the UK, Italy and Spain. Even though the US has threatened tariffs, they have not actually imposed any,” she said.
Deloitte tax partner Robyn Walker said that the scale of tariff retaliation against our exporters was so greater that the tax did not make sense from a national welfare perspective.
“The value of potential tariffs that have been imposed by the US and other countries is often equal or more or round about the amount of the revenue expected to be collected from the DTS so from a national welfare, it doesn’t really make sense,” she said.
She said the difficulty was the people who would face the impact of the tariffs, our exporters, were often not the ones making the greatest use of these online platforms.
“The people using these platforms aren’t probably the ones who will suffer the effects of the tariffs,” she said.
Walker said New Zealand should have waited for the OECD process.
“All the other countries that have gone ahead with the DST or proposed it have been the subject of threats of tariffs from the US,” she said.
As the campaign heats up, there the major parties are making an unlikely bipartisan effort at frustrating major trading partners. While the DST is likely to incite the rage of the United States, National’s foreign buyers ban has come under scrutiny for its potential to anger China for breaching a tax agreement with that country.
All this as New Zealand faces a near-record current account deficit of $33.0b in the year to March.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
