Our tax system: bases and regimes

By Robyn Walker

Is our tax system structured in a way that is suitable for the future? What are our long-term fiscal pressures? Are there alternative ways to design our tax system to address tensions? What are the merits of alternative tax bases and mixes of taxes? Does it make sense to add new taxes or just stick with what we’ve got? These are all questions which are proposed to be explored in the next Inland Revenue long-term insights briefing (“LTIB”). Consultation on the scope of the proposed LTIB is open until 4 October 2024.

LTIBs are required under the Public Service Act 2020 and are eloquently described by the Public Service Commission as: "designed to be ‘think pieces’ on the future, providing information about medium and long-term trends, risks and opportunities that may affect Aotearoa New Zealand. They give effect to the Public Service’s stewardship responsibilities and are not government policy."

The proposed LTIB topic will meet the brief specified by the Public Service Act and is sure to provide invaluable information about our tax system. While LTIB’s are not political documents (and the topic and work are not directed by Ministers), it is likely that the LTIB will be used for political purposes once it is complete. With wealth taxes proposed by certain political parties in Election 2023, those same parties may be interested in the leadup to Election 2026 in what Inland Revenue conclude about different tax types.

The LTIB scoping document states “[w]e will consider the pros and cons of taxes on payroll (including social security contributions), land, real property, wealth, inheritances or estates, turnover and transactions, and what overlaps and differences there are in these bases versus our existing bases.” The scoping document goes on to note that it is desirable to create an opportunity for open discussion of the pros and cons of introducing additional tax bases versus raising rates on existing bases if future revenue needs substantially increase. The scoping document helps set the scene with information about existing tax bases, comparisons with other OECD countries and analysis of New Zealand’s demographics.

Some interesting demographic statistics from the scoping document include:

• The current average age of a New Zealander is 38, but by 2073 this is expected to be over 47 years old.

• In 2022 there were 25 people aged 65+ per 100 people aged between 15-64. By 2073 this is projected to be 48 per 100 (or 2.1 working age people for every person aged 65 and over).

• Over 25% of people aged 65+ plus are currently still in the work force.

• The workforce is expected to grow from 2.9 million people in 2020 to around 3.7 million in the early 2070’s (the total population is forecast to be 6.6 million).

• The cost of superannuation was 4.1% of GDP in 2020 and this is forecast to increase to 7.5% in 2080, based on current settings.
  

The decision to look at this topic has merit. That said, the topic chosen has many facets and may consume significant resources to complete properly - the breadth of the topic, and subtopics within, is potentially equivalent to completing a ‘tax working group’ equivalent process. We’ll be watching progress with interest.

After considering feedback on the scoping document, work will be underway on the LTIB. Additional consultation will then be undertaken on Inland Revenue's work and conclusion. Inland Revenue estimates that the LTIB will be finalised and provided to Parliament in mid- to late- 2025 (an ambitious target given the scale of the project).

For more information please contact your usual Deloitte advisor.