Long term benefits to tax reform

Long term benefits and fairness should overcome worries over day-one impacts of needed tax reform

A major business leadership group which focuses on long-term solutions for New Zealand’s problems says it supports proposed tax reforms so individuals can grow their wealth and the country can attract investment.

The New Zealand Business Council for Sustainable Development says it welcomes moves to equate the top personal, corporate and trust tax rates, lower personal income taxes and possibly broaden the tax base by increasing GST.

This will lead to a fairer and more sustainable tax system.

The Business Council recommended moves like this to the previous Government at a special Business Budget Summit of Ministers and business leaders on November 1, 2007.

Business Council Chief Executive Peter Neilson, a Minister of Revenue soon after GST was first introduced, says the Business Council believes tax reform is needed for the country’s long-term benefit.

“It seems we are preoccupied as a nation with who might win or lose on the first day of reform. Not many would argue for a return to a top personal tax rate of 66 cents in the dollar and for no GST.

“Many will focus on the day-one impact of possible changes, like the initial price rises caused by increasing GST from 12.5%to 15%. That’s understandable. But we also need to appreciate that the rest of the world isn’t standing still on broadening their tax bases and cutting personal and company tax rates.

“In a world where capital and labour are both mobile the taxes paid on these are critical for where investment occurs and income is recognised.

“We need to make changes to remain competitive. To give Kiwis a chance to grow their personal wealth and attract and keep people and investors, to grow the economic cake so we can afford benefits, education and health care in the future.

“There seems to be a strong desire among New Zealanders for both tax reform – and maintaining social spending and social cohesion.

“Provided the changes in tax are across the board and those on low incomes and benefits are compensated for day-one impacts, as the Government is suggesting, then reform should be acceptable to most New Zealanders.

“The income tax cuts and compensating benefit changes were delivered before GST was first introduced, and a similar move – which provides reassurance to those worried by first-day impacts - could be considered again this time,” Mr Neilson says.

“It’s important that people understand that increasing tax on spending and reducing tax on income is healthy for every citizen - and that beneficiaries others on low incomes will be no worse off via benefit and other adjustments.”

Business Budget Summit recommendations and other research on the tax system are at
http://www.budgetsummit.org.nz

The Business Council has commissioned a major national survey on New Zealanders’ views on the Tax Working Group’s reform options. The survey, using the 15,000 member ShapeNZ online service (www.shapenz.org.nz) went into the field on Monday (before the Government’s policy announcements on Tuesday). Results, weighted to represent the national population and covering thousands of people, are expected to be released next week.

ENDS

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