GST and property changes could bring large tax cuts - expert

By Ian Llewellyn of NZPA

If the Government goes ahead with its entire tax reform package it will be able to cut the top rate of personal tax, corporate tax and trust tax to 30 percent, as well as creating a tax free earnings threshold and compensating low income people for the rise in GST, a tax expert said today.

Buddle Findlay tax partner Neil Russ said there was a "smorgasbord of options" that the Government could take if it raised GST to 15 percent and cut the depreciation claims on investment properties.

The GST hike would raise around $2 billion and the property tax changes would save the Government around $1.6 billion.

Prime Minister John Key has indicated that the Government is looking at cutting tax rates, not the thresholds at which they pay those rates.

Mr Russ said it would cost about $1.6 billion to align the top personal, trust and company rates at 30 percent.

It had been estimated by the Tax Working Group that it would cost around $600 million to increase benefits, superannuation and Working for Families payments to compensate for the lift in GST.

Mr Key said today that personal tax cuts would be across the board, Mr Russ said one possible way to do this was to make a certain amount of income tax-free.

Mr Russ said he did not believe the Government would lower the smaller tax rates, but the model overseas was to allow the first few thousands of dollars tax-free.

In 2005, Treasury estimated that the Greens' election promise of creating a $5000 tax-free income threshold would cost $2.47 billion.

Depending on how far the Government would go the money raised from changes would allow it to move towards this, Mr Russ said.

Aligning the tax rates would end the practice of people arranging their affairs to minimise tax.

"All of the sudden life would become a lot simpler for the IRD and taxpayers, and some of the strange and artificial behaviours we see would stop," Mr Russ said.

Changes to the property deprecation charge would remove a "distortion" on investment decisions and it would be difficult not to cover both commercial and residential investment properties, Mr Russ said.

Cutting the rates and creating a tax free threshold would also stimulate economic activity partly increasing the Government's tax take.

Mr Key said the entire package could raise up to $4 billion allowing for significant reform.

"We think the package is potentially somewhere in the order of $3-4 billion so it gives us quite a lot of room to move in terms of personal tax cuts and potentially corporate tax cuts (which) we haven't ruled out."

National had a long term goal of aligning the 30 percent top rate, trust rate and company rate.

"Whether we can get there in one step I can't tell you at this point," Mr Key said.

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6 Comments & Questions

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Oh Keep Lending 250 Mill per week NZ Govt,,
Hey isnt That Reserve Bank Guy A Clever Man

Ahhh the serenity , Smell it,,,

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Its very easy to see the winners out of this....The high income earners....

There remains a question mark on whether this will be for the low income workers; which are the masses.....Just a further erosion of whats left of the middle class; more than likely..

We all know who brought in GST; Roger Douglas. Dont you find it a coincedence he forms part of the coalition government now.
From its introduction, this country wealth has disappeared; into the hands of the select few who are mainly domiciled overseas.

While there are a number of reasons why Australia is a wealther nation, the main reason is they look after their middle class; though a fare the introduction of GST over there will be the start of their erosion. Thats what the government needs to focus on, not the rich.

The problem with the rich is they can domicile anywhere; leaving the damage behind for the masses.

The only thing I agree with is the alignment of the taxes will stop individuals diluting the tax base; get rid of some inefficient paperwork, & make the IRD's easier.

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Its very easy to see the winners out of this....The high income earners....

There remains a question mark on whether this will be for the low income workers; which are the masses.....Just a further erosion of whats left of the middle class; more than likely..

We all know who brought in GST; Roger Douglas. Dont you find it a coincedence he forms part of the coalition government now.
From its introduction, this country wealth has disappeared; into the hands of the select few who are mainly domiciled overseas.

While there are a number of reasons why Australia is a wealther nation, the main reason is they look after their middle class; though a fare the introduction of GST over there will be the start of their erosion. Thats what the government needs to focus on, not the rich.

The problem with the rich is they can domicile anywhere; leaving the damage behind for the masses.

The only thing I agree with is the alignment of the taxes will stop individuals diluting the tax base; get rid of some inefficient paperwork, & make the IRD's easier.

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While I am not a high income earner, I can see some advantages - good to see a government encouraging people to earn and create wealth, rather than being penalised for this and spreading money in the name of fairness. Surely some good can come of these changes??

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All those saying that this is purely for the high income earner are talking bollocks - who do you think owns all the investment properties in NZ? beneficiries? Low income earners? yeah right.

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Such reforms are always about compromise. Pay more GST and we’ll lower the other taxes. Sure, the hike seems steep and everyone would have to find ways to dig deeper into their pockets, but once the regulation becomes a reality, everyone will somehow still manage and continue on with their lives.

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