New Zealanders want tax reform but support hinges on personal tax rate decisions

Nearly eight out of 10 New Zealanders think the country’s tax system needs reform.

Nearly seven out of 10 want the 12.5% and 21% marginal tax rates reduced for those in the bottom two income groups.

A scientifically conducted nationwide ShapeNZ survey of 2,281 New Zealanders on reform options proposed by the Tax Working Group, finds 65% think the current tax system is unfair or very unfair.

Commissioned by the New Zealand Business Council for Sustainable Development, the survey also shows most oppose raising GST to 15% (62% against, 22% for) and bringing in a new land tax (50% against).

The online survey, conducted between February 8 and 15 and weighted to represent the national population, has a maximum margin of error of + or – 2.1%. Some 1383 responses were received before the Prime Minister’s statement on February 9 regarding the Government’s tax reform thinking, including a possible rise in GST to 15%. There was no significant change in results before and after the Prime Minister’s statement.

The survey is of individual measures proposed by the Tax Working Group. Any package of tax measures announced in May’s Budget is likely to be assessed on its overall effect, rather than individual measures.

Reform options support:

There is support for:

• aligning top tax rates for personal incomes, companies and trusts (56% support, 11% oppose)
• reducing company tax rates from 30% to 27% (41% support, 26% oppose)
• reducing lower marginal tax rates from 12.5% to 10% and 21% to 19% (69% support, 8% oppose)
• removing depreciation allowances on buildings that do not depreciate (67% support, 7% oppose, though when later questioned on applying this to industrial and commercial buildings support fell to 37% while 38% said they didn’t know)
• removing tax depreciation allowances on rental homes (46% support, 17% oppose)
• discontinuing the use of Loss Attributing Qualifying Companies (LAQCs) to split incomes to quality for Working for Families payments (48% for discontinuing, 16% for continuing, 36% don’t know)
• an end to income splitting: stopping the self employed distributing income to family members, through companies and trusts, to lower their household’s overall tax compared with other households with the same overall income from wages and salaries (48% support discontinuing, 22% want splitting to continue, 30% are not sure)

People are evenly split (28% both for and against) the idea of broadening the tax base by introducing a comprehensive capital gains tax, while 26% are neutral on this and 17% don’t know.

Some 56% say lowering top personal tax rates and a more broadly based tax system will improve New Zealand’s attractiveness for people and investors.

Some 21% say the Tax Working Group’s proposals to attract investors and keep or attract skilled people are about right, 19% say they don’t go far enough, while 12% say they go too far and 48% are not sure.

Options opposed:

Of the Tax Working Group’s options, there is opposition to these individual measures:

• raising GST from 12.5% to 15% (62% oppose, 22% support, 14% are neutral and 3% don’t know). This rises to 90% opposition and just 4% support for raising GST to 17.5%
• an annual tax on all land of 0.5% (59% oppose, 17% support, 22% neutral, 10% don’t know).

Concerns over fairness, impacts:

While 65% think the current tax system is unfair (only 11% think it is fair) and 79% think the system needs reform (only 5% say it doesn’t) there is widespread concern over how to do this fairly and a close split over whether the Government should take a bold or moderate approach to reform.

Some 59% are not confident they will be adequately compensated through benefit rises and tax cuts if GST is increased. Only 12% are confident they will be adequately compensated while 29% are not sure.

Similarly, 54% are not confident changes to the Working for Families scheme will be fair.

While they support removing depreciation allowances on rental homes, 49% say this will be likely to increase rents (4% think it will lower rents, 21% think it will no effect and 26% are not sure). Further results covering property depreciation reform proposals will be released later this week.

Asked if they would be generally better or worse off as a result of a package which aligns top personal, company and trust tax rates at 33% or lower, increases GST to pay for this, introduces a new land tax and removes special depreciation allowances and tax avoidance opportunities, 47% say they would be worse off. Only 9% think they would be better off, while 22% say no better or worse off and 22% are not sure.

Influence on voting intentions:

The reform issue also carries large risks for policy makers: Some 29% say the tax policies proposed by each political party will have a significant influence on their party vote at the next general election, 40% say it will have some influence. Only 18% say tax policy will have no influence at all, while 13% are unsure.

Among the governing coalition parties, of National’s 2008 voters 74% say tax policy will have an influence on how they vote next time (28% a strong influence); among ACT voters 81% (30% a strong influence), Maori Party 67% (23%) and United Future 85% (42%).

Among other parties tax policy will influence 75% of Labour’s 2008 voters (37% strongly), Green’s 75% (28%) and Jim Anderton’s Progressives 93% (52%).

It is a vote-influencing issue for 48% of voters who were undecided at the 2008 election (24% strong).

Bold versus moderate approach:

Asked generally which approach they would like the Government to take on tax reform, 40% say they want it to produce a moderate reform package, 33% a bold one, while 20% say they really don’t know and 6% only say the Government should take no action at all.

ACT voters most favour bold reform (66% for bold, 28% for moderate), while National’s 2008 voters favour moderate over bold by 46% to 40%.

A report with more survey details is available at www.nzbcsd.org.nz.

Results are weighted by age, gender, ethnicity, personal income, employment status and party vote 2008 to provide a nationally representative population sample compared with the 2006 census and 2008 general election.

The survey continues at www.shapenz.org.nz.

ENDS

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