Is Budget 2026 the time to change tack and adopt another tax switch?

When it comes to the tax system, Budgets (and elections) are where you expect to see “big ticket items” announced. However, while there have been some notable developments (Investment Boost in 2025 and a 39% trustee tax rate in 2023 are particular stand outs), the last Budget to deliver meaningful tax reform was in 2010. That year, Rt Hon Bill English performed a “tax switch,” cutting personal, company and portfolio investment entity (PIE) tax rates, while increasing GST from 12.5% to 15% and removing building depreciation to fund the changes. You can take a trip down memory lane with the table of Budget tax announcements at the end of this article for more on tax reform over the years.

Recent thinking from across the Tasman suggests it may be time for our nearest neighbours to take a new approach to tax reform, inspired by English’s 2010 Budget. But instead of waiting for Australia to follow, should Budget 2026 mark New Zealand’s own return to decisive tax reform, just like Budget 2010?

The logic in 2010 was to stare down the post-GFC fiscal challenges and improve the tax incentives in the economy – more work, more savings, and less consumption. The aim was not to change total tax, as that was unaffordable, but instead to reconfigure where tax was collected from.

A natural question, then, is whether this approach actually worked. This is a question that economists could spend a long time determining the answer to. Unfortunately, I don’t hold these answers, but some basic numbers might provide a clue as to the success of Budget 2010 and whether it’s time for another reset.

The following numbers are taken from the Crown Financial Statements for 2010 (before the tax switch), 2017 (a rough mid-point, and prior to the 2017 change in Government) and 2025.

What these numbers could suggest is:

• Between 2010 and 2017, the reforms did achieve their goal. Despite a lower company tax rate, total company tax did increase in absolute and percentage terms, suggesting economic growth. Personal taxes proportionately decreased, while GST increased.
• Between 2017 and 2025, tax proportions effectively reverted to pre-2010 settings, with a greater share of tax revenue collected directly from individuals – possibly due to the reintroduction of the 39% personal tax rate in 2020.

The case for a new tax switch is compelling, particularly given the need to ensure our company tax rate is internationally competitive to encourage foreign investment (it is not), and to future-proof the tax system against changing demographics.

With an ageing population, there needs to be less reliance on taxing workers, and a greater reliance on taxing consumption (which can’t be avoided through retiring from the workforce). Each 1% increase in GST is estimated to yield around $1.8 billion in extra tax revenue (based on 2020 figures and likely higher today), providing room to reduce company and personal tax rates, while adjusting benefit payments to compensate lower income earners for the GST increase (as occurred in 2010).

Will Budget 2026 be bold enough to make changes like this? We’ll find out soon, but if Budget 2026 is a letdown on the boldness front, there is still hope that our political parties can give some serious thought to reform to a tax switch as part of Election 2026 manifestos.