English concerned at possible early housing boom

A premature housing boom would not be good for the economy and the Government will consider ideas, possibly a capital gains tax, to avoid one, Finance Minister Bill English says.

Debate about tax reform was reignited today when Radio New Zealand reported details of papers it obtained under the Official Information Act which showed senior government officials were pushing for radical revamp of the tax system including a move from income to spending tax.

A tax expert group has been meeting to consider reform of the tax system.

At the National Party conference in Christchurch at the start of the month English said the Government would have to make tough decisions that members might not like and did not rule out raising GST or imposing a capital gains tax.

An Infometrics report yesterday said house prices could grow by as much as 11 per cent nationally in the coming year, and by 24 per cent in the next three years.

"There is some evidence at the moment that the recovery could consist of a pick up in housing," English told reporters today.

"Now that's more of the problem than we had before and it would be a concern particularly if it goes with a high exchange rate that punishes our exporters."

English said his priority was to ensure the economy recovered in a sustainable way.

"If we go back to more borrowing for houses and more spending then that can't last.

"The tax system may be one way of tilting the playing field but we've yet to see whether that would work and that's what the officials are away working on."

Asked about a capital gains tax, English again did not rule it out.

"In the long run the economy needs to shift away from spending and borrowing on housing to more exporting. The signs at the moment are that it's not making the shift that we would want to see, so we need to look at whether there's any policy mix that might make the right shift."

English said there were other measures the Government could look at apart from tax.

"There's a lot of other things we may need to do with the Resource Management Act, with the way councils write their plans, the public transport that could all contribute to making sure we don't have a premature housing boom."

Asked about increasing GST from 12.5 per cent English said that would have an impact on lower income people.

"The official advice is pretty straightforward. If you want to stop people spending more, put GST up, but of course that has a big impact on people, particularly on lower incomes, so it's not a straightforward issue.

"The officials are working away on it, they'll have a pretty hard job to persuade the Government for major change. There may be less significant changes that will tidy up the system and simplify it."

The papers also included a proposal for the replacement of the Research and Development tax credit. They include a direct grant or giving small businesses vouchers to buy research.

English said the Government was talking to the business community about what they wanted regarding research and development.

The Government would need to be convinced before agreeing to any changes.

"It would be a pretty hard job to persuade us to make significant change to the current system but clearly there are some lessons from our last economic boom that we don't want to repeat."

The case for change would have to be strong because the Government could not afford tax cuts.

"We can only look at the mix of taxes and simplifying taxes and changing the mix. To do anything significant you'd need a pretty strong case for change and we haven't seen that yet."

- NZPA