Tax System Needs Effectiveness And Efficiency, Not Tax Breaks

“The Government needs to put an integrated tax solution ahead of the needs of particular groups,” Craig Macalister, Tax Director, New Zealand Institute of Accountants (NZICA) said today.

“Various commentators and interest groups have remarked on specific aspects of the Tax Working Group’s individual recommendations as they impact on their particular circumstances. Yesterday, the Government also responded by saying it is looking at how to flow tax breaks to low income earners with families who already pay no tax.”

“The work of the Tax Working Group was not about the individual components and sectors of society or about lower tax outcomes for everyone. Rather, the focus was on the design of a more coherent tax system that is fairer to all. That is a tax system that collects taxes as fairly and efficiently as possible.”

“Years of ad-hoc changes to our tax system have resulted in a fractured system that levies different rates of tax across different entities and allows some people to easily avoid taxes that others cannot. Further, it has inherent biases favouring some assets, and an overreliance on direct taxation.”

Mr Macalister said the Government needs to grasp the opportunity to restore some balance and equity to our tax system.

“We acknowledge that decisions to restore equity and fairness are not easily made, particularly as this will mean a shift in who bears the burden of taxation in New Zealand. Inevitably also this will involve less of a direct burden on some and more on others. However, it cannot mean less for everyone or particular groups of people over others.”

“If New Zealand is to look at solutions objectively, we need to tackle the inherent biases in our tax system that allows capital assets to be under-taxed relative to other assets. The myriad of different tax rates applying to different entities needs to be resolved, as does the incentives the tax system creates for people to avoid paying their fair share of tax”.

“In the Institute’s view also, there is too much reliance on taxes such as PAYE and income tax: a shift in this burden is required. While we would favour shifting this burden to GST, that is not the only solution,” said Mr Macalister.

Mr Macalister believes the Government should consider reducing business tax compliance costs as part of the overall reform of our tax laws.

“The business tax regime has become increasingly convoluted, meaning small business owners are spending a disproportionate amount of time complying with tax obligations. Business owners’ time should be spent in their business or with family, rather than on tax compliance.”

“We have developed a proposal with Tax Management New Zealand Limited that outlines a new, simplified tax system that is easy to understand and easy to comply with. It has two categories of small business, measured by turnover, one for Micro Businesses earning under $60,000 per year and one for Small Businesses whose turnover is less than $1.2 million per year. We estimate we could reduce the costs of tax compliance for these businesses by up to a third,” he says.

Details can be found on www.smetax.co.nz. Submissions on these proposals close at the end of February.

ENDS

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