New Tax and Social Policy Work Programme sets the tax policy scene

By Robyn Walker
 

For those with an interest in policy development, one of the highlights of any new Parliamentary term is the release of the Tax and Social Policy Work Programme (the work programme). This sets the scene as to what can be expected from the Government when it comes to tax policy development over the following period (typically 12-18 months).

The current Government has been in power for over a year now, so it was with great anticipation that the new work programme was revealed mid-November by the Minister of Revenue, Hon Simon Watts.

With stakeholders and the public in general having long wish-lists for changes to the tax system, it is a process of prioritisations and trade-offs to set the work programme (noting in recent history the work programme has been aspirational and not all items will be completed). The work programme is set based on the priorities of the Government, and while you cannot please everyone, businesses are more likely to look favourably on what is proposed. The overarching priorities for this work programme are stated as being simplifying tax and reducing compliance costs, addressing integrity risks, and improving fiscal sustainability.

The work programme itself is divided into six pillars:

• Economic growth and productivity
• Integrity of the tax system
• Modernising the tax system
• Strengthening international connections
• Social policy
• Other agency work

To show that the Government and Inland Revenue hasn’t been sitting idle on tax for the last year, the work programme includes a series of items which have already made their way into legislation in the Taxation (Annual Rates for 2024/25, Emergency Response, and Remedial Measures) Bill (we don’t discuss those further in this article).

For businesses and accountants, some of the highlights in the work programme are:

• Exploring compliance cost reductions, including improving tax compliance for small businesses
• Fringe benefit tax review
• Reviewing thin capitalisation settings for infrastructure
• Reviewing the foreign investment fund tax rules
• Trust disclosures post-implementation review
• Clarifying the income tax treatment of software development expenditure
• Simplifying the tax rules for non-resident contractors
• Double tax agreement negotiations
• Remedial work programme (this involves committing resources to do maintenance on tax laws when errors or abnormalities are identified)

After a period under the previous Government where there was minimal consultation on substantial tax changes (such as the property tax changes), it is refreshing to see the work programme include a clear commitment to consulting on tax reform: “The Government is committed to transparency through public engagement on the design of tax policy via the Generic Tax Policy Process. Public consultation plays an important role in creating and sustaining a durable and widely accepted tax system.”

Essentially, the aim of this Government is to keep tax uncontroversial with minimal “surprise” announcements of unexpected tax policies. One item on the work programme which has not yet been mentioned is “reviewing elements of charities and not-for-profits.” What precisely this means is not clear, but there have been extensive comments made by the Government that it is looking at whether certain tax exemptions remain appropriate. On 3 December 2024 the Minister of Finance was quoted saying “…what essentially we're doing is looking to see if there are any loopholes that are being exploited that would allow entities that are structured as charities to avoid tax they should otherwise pay… You can expect me to make announcements at the Budget.” With the promise of details in Budget 2025, but also the commitment to the Generic Tax Policy Process, the expectation is that there should be some consultation, either before or after the Budget to ensure any proposed changes are appropriately targeted.

Overall, the Government should be commended for having committed to a work programme which is materially focused toward improving the economy, including enhancing productivity through stripping out compliance costs. With the Government having established itself as having a focus on targets and delivery, it seems likely that the remainder of this Parliamentary term will remain busy on the tax front, with the main focus being to improve on what we already have.

Future editions of Tax Alert will continue to keep you updated on all the latest tax policy proposals.