BUDGET PREVIEW: time to tackle some meaningful issues

By its very nature politics is a fickle beast. To ensure they get in – or stay in – power, a government needs to promote policies that appeal to enough voters to secure their success. 

However, the real dilemma arises when what’s best for the economy conflicts with voters' personal circumstances – or, to be more specific, their financial circumstances.

Politicians pander to this and instead of trying to improve the country’s economic position, the incumbent is more likely to focus on ways to ensure they remain in power for the next term.

This kind of short-term thinking often results in election lolly scrambles that can create legacy issues with long-term economic implications. 

Obvious examples of recent policies that have hindered our economic growth include the expansion of the Working for Families and interest-free student loans that were announced in 2005.

After the recent fallout that the government faced over the carpark, cellphone and laptop tax proposals, ministers have come out stating that they will focus on bigger and more important tax matters.

As a tax professional, it’s easy to appreciate the theory behind the proposed changes. Creating tax equality where possible is paramount to the integrity of a tax system. But it doesn’t seem this was fully thought through. 

Not only were the proposed changes massively unpopular and complex, they collected minimal revenue. The end result was an epic fail on both fronts.

What we need is a government that has the courage to make bold decisions for the greater good of NZ Inc this Thursday. Inevitably, they will be unpopular with certain voters, but to move forward we need to do things differently.

Eliminate interest-free student loans

This policy is costing our nation billions and it needs to be changed. Every dollar borrowed costs New Zealand 37 cents. And the bottom line is, people do not appreciate things they don’t have to pay for.

A recent article on Stuff.co.nz detailing how to “game” the student loan system and repay the loan as slowly as possible is a good example of this – very valid economic advice for the borrower, but it comes at the country’s expense. 

Studying should be encouraged and the student loan scheme allows anyone, irrespective of their financial background, to pursue tertiary education. But having the taxpayer fund the interest cost is an unsustainable model.

Increase the retirement age

We are riding a grey tidal wave that is going to hit our economy hard. 

Most people acknowledge the need for this to shift given the increased life expectancy and current economic climate, and wouldn’t begrudge a government that increased the retirement age in a prescribed, staggered manner. 

Targeted taxes on real estate acquisitions by non-residents

Hong Kong recently introduced stamp duties on the acquisition of residential properties acquired by people who are not permanent residents. A flat rate of 15% on acquisition and a further tax on the sale ranging from 10% to 20% depending on the length of time held. 

This concept is appealing for two reasons:

1. It provides protection for domestic residents.
2. It creates a revenue stream from non-residents who otherwise contribute little to the domestic tax take. While this is not without flaws, and the details would need to be worked through, it works conceptually. A blanket capital gains tax would be preferable, but I cannot see any government willing to tackle that monster.

There is no doubt that some good things are happening at policy level, such as reviews into the taxation of savings and investment and the hotly debated taxation of multinationals. But there seem to be easier wins out there.

Wouldn’t it be great if the government addressed some meaningful issues in this Budget and generated positive change in our economy?

Dan Lowe is an associate, tax, at Grant Thornton New Zealand, chartered accountants and business advisers. Email: dan.lowe@nz.gt.com