Homeowners face land tax of 0.5pc

A proposed land tax will be the third tax burden on homeowners if the tax working group's recommendations are passed into law.

The tax, suggested last month by the tax working group, would be 0.5 per cent of the unimproved land value.

It will be on top of rates already collected by local councils and the GST paid on those rates.

The working group has also recommended GST be increased from 12.5 per cent to 15 per cent.

Westpac research economist Dominick Stephens said this three-way tax burden may come as a bit of a surprise.

"I do think it will come as a bit of a surprise to land owners," he said. "But someone has to pay for the hospitals and the schools.

"At the moment most tax paid in New Zealand is on incomes. There is nothing to stop a person taking that income and moving to Australia. If you tax land - well, land can't move. It's a more secure means of raising revenue."

Lawrence Yule, president of Local Government New Zealand and Mayor of Hastings, says the organisation hasn't discussed the tax working group's recommendations with the Government yet, but they will.

"Anything that puts more tax on property will have the net effect of putting people off investing in property," he says.

"There are issues we have to work through but this will undoubtedly have an impact. But we have to remember a lot of water will have to go under the bridge before this tax goes through."

At this stage, Mr Yule wants to ensure there is a clear demarcation between funds raised by local government and those raised by central government, he said.

The tax working group report was released to the public this month. Their main concerns were the appropriateness of the tax structure in New Zealand, the fairness and long-term sustainability.

In their report, the working group recommended that New Zealand's company tax rate should be more competitive, the top personal tax rates of 38 per cent and 33 per cent should be reduced, the Government should introduce a comprehensive capital gains tax and the GST should increase to 15 per cent, as well as the land tax.

Finance Minister Bill English and Revenue Minister Peter Dunne have said they will carefully consider the group's recommendations before announcing any changes to the tax system.