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Businesses impacts matter in tax policy

Election Survey 2023

Deloitte's perspective

By Robyn Walker

While tax barely featured during Election 2020, it’s been front of mind and in the headlines continuously in 2023, with political parties actively proposing a plethora of new taxes to fund other tax reductions and spending. A lot of the attention has gone onto policies which have more direct impact on individuals, such as personal tax rate changes, wealth taxes, and removal of GST from food, but the reality is these changes would all have flow on impacts to businesses.

There are also parties proposing increases to company tax rates (Greens, Te Pāti Māori, and TOP as part of their second phase of reforms). So, it seems possible that businesses could be grappling with a raft of new tax changes depending on the outcome of Election 2023.

This is not the answer businesses are looking for, with the majority of respondents in this year’s Election Survey favouring a retention of the status quo for personal tax rates, the corporate tax rate and GST. Respondents also remain unconvinced that wealth taxes, capital gains taxes or windfall taxes are a good idea, with 67, 61 and 70% respectively opposed to them.

The desire for stability on tax may be driven by the breath-taking statistic that 92.7% of businesses are facing increased costs of doing business due to Government changes over the last three years.

Businesses have faced near non-stop changes to tax, including property tax rules, business continuity rules, purchase price allocation rules, trust disclosure rules, changes to GST invoicing and fringe benefit tax (FBT) calculations due to the 39% tax rate, to name a few. Faced with these, it is understandable that 0.7% of survey respondents felt there had been a reduction in tax compliance costs in the last three years, with over 63% indicating compliance costs are up.

For years there has been a layering of compliance costs on businesses with seemingly little regard for the impact this has on productivity or investment decisions. While COVID-19 bought some wins for businesses in the reinstatement of depreciation on commercial buildings and reform to the tax loss carry forward rules, the pandemic has meant slim pickings for businesses who were hoping for tax changes to make things easier.

Since Election 2020, the Tax Policy Work Programme has been stacked with projects. They’ve managed the removal of interest deductions from residential property, invoked integrity measures to buttress the 39% tax rate and complex OECD proposals for taxing multinationals, not to mention countless hours spent developing an abandoned wealth tax for Budget 2023.

With all this going on, there has been little capacity to consider any reform which could actually improve things for business, whether that is fixing the accounting income method of calculating provisional tax (Labour Party policy from 2020), reforming fringe benefit tax (recommended by the Inland Revenue FBT Stewardship Review), considering accelerated depreciation (recommended by the Government Advance Manufacturing Steering Group) or reforming international tax and employee share scheme tax rules to encourage high talent to New Zealand (recommended by the Government Start-up Advisors Council).

The idea of accelerating depreciation deductions is viewed favourably by 46% of respondents who say this would encourage investment into new, productivity-enhancing assets. But when it comes to complicating the tax system to deliver wider social outcomes, nearly 70% of respondents would prefer to leave the tax system out of it.

Depending on the outcome of the election, there may be hope of respite for businesses. Parties at the right end of the political spectrum have already suggested repealing some tax rules and have a greater focus on removing red tape rather than stifling businesses with it. However, the ability to repeal complex tax rules that are currently bringing in tax revenue may ultimately come down to fiscal responsibility, and there may need to be a phased approach to repealing some rules, particularly if the opening of the Government books with the Pre-election Economic and Fiscal Update on 12 September 2023 reveals there is little room for changes in total tax collections.

Chapman Tripp's perspective

By Vivian Cheng, Chapman Tripp

Should GST be removed from food (or fruit and vegetables) to alleviate cost-of-living pressures and encourage healthy choices?

Although the idea has voter appeal, it is a poorly targeted mechanism for achieving distributional and social policy goals. It may save lower-income households $14.58-$27.39 per week, but at a cost that could fund a weekly transfer of $28.85 to every household (2018 Tax Working Group).

New Zealand’s simple, comprehensive GST system is internationally admired and key to our ‘broad-based, low-rate’ approach to tax. Introducing a GST exemption for food could lead us down the slippery slope to complex, arbitrary boundaries that increase compliance and administrative costs and erode the tax base (UK, Australia, Canada are examples).

In a nutshell, it is a bad idea, especially when the government’s revenue position is already worse than forecast. If the regressivity of GST is viewed as problematic, increasing transfers to lower-income households or the progressivity of income tax may be better solutions.

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