Tax Working Group report timing may bring policy action

Tax experts think some of the ideas in a report by the Tax Working Group tomorrow may be taken up by the Government because of the impact of the global financial crisis and because of concerns about the Government's revenue base.

The report of the Tax Working Group has been touted as a potential catalyst for an overhaul of the tax system, though Finance Minister Bill English has called for practical suggestions because any changes would need public support.

He has ruled out recommendations last year from the separate 2025 Productivity Taskforce to cut income tax to 20 percent and slash government spending by $9 billion as too radical.

Prime Minister John Key has talked about shoring up the tax base and ultimately lowering personal tax rates, while ruling out a capital gains tax on sales of family homes.

The issues canvassed by the working group since it was set up in May last year include broadening the tax base, aligning personal and corporate tax rates, the balance between income and consumption taxes like GST, the taxation of property compared to other investments, alignment with Australian tax policy and tackling foreign companies that load subsidiaries with debt to avoid tax.

The working group does not make government policy but government officials have had an input into the group.

``It is quite an interesting beast. It is a great kite flying mechanism and there are some good people on it,'' said Neil Russ, leader of Buddle Finlay's tax practice.

There have been many tax reviews before, including the McLeod report.

``The difference this time is that there really is a need,'' said Mr Russ.

``I believe the revenue officials are very concerned about rental property investors taking tax deductions,'' Mr Russ said.

Often tax was a significant factor in decisions people made about investing in rental property.

Rents often did not cover the cost of mortgages in rental properties and the difference was being bridged by the public in the form of tax break to owners.

This was the sort of issue the group was likely to address, he said. Another possibility was some sort of wealth tax at a low level.

Mr English has said any changes to the taxation system would have to be cost neutral, meaning revenue gained in any one area would be offset by reductions elsewhere.

In working papers the group advocated a land tax over a capital gains tax, on the basis of simplicity.

It noted New Zealand's 30 percent corporate tax compared to an average rate of 26 percent for small OECD countries.

Professor Bob Buckle, the group's chairman, has said that about $500 million in net losses was claimed by people with rental properties last year. This was off an over $200 billion asset base, around four times the value of New Zealand's stockmarket.

NZX chief executive Mark Weldon, who is a member of the group, has advocated dumping loss attributing qualifying companies (LAQCs), which allowed some wealthy people– including some on the Tax Working Group – to pay no tax at all. These are used for property investments.

Group members include Rob Cameron, Paul Dunne, Arthur Grimes, Rob McLeod, Gareth Morgan, Geof Nightingale, Casey Plunket, John Prebble, Mike Shaw, John Shewan, Mark Weldon and David White.

Mr English has said a strategic review of the tax system was necessary in light of the challenges posed by the current economic and fiscal environment and the Government's medium-term goal of a 30 percent top personal tax rate.

The tax working group has been criticised as being stacked with corporates.

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