In its consultation document, it said it wanted to open discussion on the challenges the tax system faced and possible options to address that.
“There are several trends that could have significant implications for our tax system in the future. The most relevant trend is that of increased fiscal pressures from superannuation and healthcare costs.
“Future governments will have the option to respond to these pressures by either changing legislative settings, managing expenditure growth, making greater use of user-pays mechanisms or increasing the amount of tax that is raised relative to GDP. We will have greater fiscal resilience if our tax system has flexibility to adapt to changing revenue needs over time.”
It was considering the pros and cons of new tax bases.
“We 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.”
It said New Zealand was unusual among OECD countries for not having a general tax on income from capital gains.
New Zealand’s income tax base was broad but the lack of a capital gains tax was a clear gap.
“Future fiscal pressures mean that alternative tax bases are likely to be contemplated...Further, there is a question as to what mix of tax bases should form the stable core structure of our tax system, which is relevant at current revenue levels.”
The lack of tax on income such as capital gains could mean it was harder for governments to increase tax revenue while still achieving equity goals, it said.
Tax expert Terry Baucher said it was notable that the department had chosen that consultation process to discuss the question of, if the country were to try to increase tax revenue, what the options would be.
He said there were a number of issues that were likely to require more tax revenue.
He expected Treasury chief economic adviser Dominick Stephens to use a Thursday speech to reiterate the position that there were likely more demands coming in future than current revenue could cover.
“The Tax Working Group in 2019 recommend a capital gains tax because it could see the coming fiscal crunch.”
As well as issues such as funding for the health system, the country needed to be able to cater for climate change costs, he said.
“We have a demographic crunch, we have superannuation costs to pay for, we have an ageing population, rising health costs all coming together.”
New Zealand’s demographic mix was changing but much of the country’s wealth was held by the older Pākehā population, he said.
“The older group will be expecting NZ Super, continued health care, and increasingly for those that have beachfront properties they’ll also be wanting support – there are going to be areas we’re going to have to abandon. That can’t all be funded by the present tax base, there are uncomfortable tensions.”
He said a capital gains tax (CGT) would be a simpler way to apply tax – at present there are a number of scenarios in which capital gains are taxed and there are different regimes applied, such as the foreign investment fund, which was a de facto wealth tax.
“People talk about the complexity of a CGT but I don’t buy that.”
Before 1949, land tax, gift duties and estate duties were 4% or 5% of the country’s tax take, he said.
NZIER chief economist Christina Leung said a broad-based CGT would be sensible if it was administratively simple.
“This means there should be no exemptions from the CGT, that assets only enter the regime when it is purchased after the implementation of the scheme, and that it is taxed on a flat rate rather than the individual’s marginal income tax rate. The implementation of a CGT should also be part of rebalancing of tax away from income tax, rather than as a way to increase the overall tax take.”
Craig Renney, policy director at the Council of Trade Unions, said the country should look at what revenue was needed and then determine what taxes would be required to pay for it.
“What does a good housing system, look like? What does a good education system, look like?
“How much will that cost? Then we can have a conversation about how we pay for it, not the other way around. If we can work out what ‘good’ looks like it becomes so much easier to say this tax might help us get there.”
He pointed to OECD data showing New Zealanders have the second-lowest “tax wedge” – tax as a proportion of income, in the OECD. This includes the offsetting effect of Working for Families.
