A new group to recommend tax changes will address a system where wage-earners "look across the driveway" at property investors who aren't paying their fair share, Finance Minister Grant Robertson says.
"A lot of New Zealanders wanted to see us look at the balance of the system," Robertson said after announcing new details about the tax working group.
"Those people who are wage and salary earners who do look across the driveway at somebody who is selling their third or fourth rental property, and not paying tax on the capital gain from that."
The tax working group will recommend changes to the Government, which has promised no major reforms will take effect until after the 2020 election. It will be led by former Labour Finance Minister Sir Michael Cullen.
Labour has said the group's focus will be on measures to help cool the housing market, but terms of reference released today also states the group will examine "what role the taxation system can play in delivering positive environmental and ecological outcomes, especially over the longer term".
Asked if he wanted to tax polluters more, Robertson said the Government had the Emissions Trading Scheme (ETS) already in place.
"What we are saying is the tax system plays a role, over the long term, in helping to promote environmental outcomes."
The water tax proposed by Labour during the campaign but dropped in negotiations with NZ First remains off the table, Robertson said.
Also outside the scope of the group's work is an increase to any income tax rate or the rate of GST, inheritance tax, any changes applying to the taxation of the family home or the land under it.
The group will not look at clawing more money back from multinational firms, given that work is already underway, or Working for Families.
Likewise for slapping a levy on international tourists, which the Government had already committed to – although that will be implemented after its first 100 days.
And work that is part of Inland Revenue's transformation programme, including abolishing secondary tax, will also be separate.
The tax working group has been asked to look at a capital gains tax that wouldn't capture the family home, a progressive company tax and other measures.
Robertson said what other reforms were considered would be up to the working group, but he did not rule out a number of possibilities raised by media during a press conference.
They included taking GST off fruit and vegetables or women's sanitary products, requiring overseas retailers to collect GST on goods bought by New Zealanders, and changes to tax treatment of KiwiSaver.
Work is already underway on the latter issue, and the working group could report back earlier on that subject, Robertson said.
"We think the working group can play a really important role in carrying on the work of the previous Government in that regard."
The other members of the eight-person tax working group are yet to be confirmed, but Robertson said there would likely be union representation, business representation, Maori business representatives as well as tax experts.
Despite that, the PSA union immediately criticised the process as a "disappointment to unions and working people", saying the scope was too narrow after an inheritance tax and income tax increases were ruled out from the outset.
"Tax is not just for governments, elites and academics to discuss," PSA national secretary Erin Polaczuk said.
Just over a week before the election Labour decided to delay any implementation of changes from its tax working group until after the 2020 election in a bid to stop any further political damage from its tax policy.
Jacinda Ardern had previously said she would maintain the right to make changes before the next election, given the urgency of the housing crisis.
However, with National going on the attack over what new taxes might be implemented Labour responded by pledging no action until after 2020.
Labour could still legislate for new taxes in its first term - but they would not come into effect until 2021.
The process will cost $4m. Interim reports from the group will be made public and Robertson said he had asked IRD and Treasury for the public to be involved as much as possible, including young people.
The group's objectives include having a "sustainable revenue base to fund government operating expenditure" of about 30 per cent of GDP, as well as:
• A tax system that is efficient, fair, simple and collected
• A system that promotes the long-term sustainability and productivity of the economy
• A system that treats all income and assets in a fair, balanced and efficient manner, having special regard to housing affordability
• A progressive tax and transfer system for individuals and families, and
• An overall tax system that operates in a simple and coherent manner.
The working group should report to the Government on:
• Whether the tax system operates fairly in relation to taxpayers, income, assets and wealth
• Whether the tax system promotes the right balance between supporting the productive economy and the speculative economy
• Whether there are changes to the tax system which would make it more fair, balanced and efficient
• Whether there are other changes which would support the integrity of the income tax system, having regard to the interaction of the systems for taxing companies, trusts, and individuals.
In examining the points above, the working group should consider in particular the following:
• The economic environment that will apply over the next 5-10 years, taking into account demographic change, and the impact of changes in technology and employment practices, and how these are driving different business models,
• Whether a system of taxing capital gains or land (not applying to the family home or the land under it), or other housing tax measures, would improve the tax system.
• Whether a progressive company tax (with a lower rate for small companies) would improve the tax system and the business environment, and
• What role the taxation system can play in delivering positive environmental and ecological outcomes, especially over the longer term.
The following are outside the scope of the working group's review:
• Increasing any income tax rate or the rate of GST
• Inheritance tax
• Any other changes that would apply to the taxation of the family home or the land under it, and
• The adequacy of the personal tax system and its interaction with the transfer system (this will be considered as part of a separate review of Working for Families).
In addition, the focus of the working group should not be on more technical matters already under review as part of the Tax Policy Work Programme, including:
• International tax reform under the Base Erosion and Profit Shifting agenda, and
• Policy changes as part of Inland Revenue's Business Transformation programme.