A new law will require the IRD to compile annual reports on the fairness of the tax system.
The law will also require another report to be published every three years, beginning in 2025, which analyses the previous three years.
The full text of the legislation was published last week. Accompanying documents say the reports will allow IRD to use powers to collect and commission new data on the way the tax system is working, in a way similar to the recently published report into the amount of tax paid by wealthy New Zealanders.
Officials, writing in the Regulatory Impact Statement, said the reports could throw up interesting and useful data of the kind New Zealanders only get to see when a government commissions a rare tax working group as in 2019, or before that in 2010.
But they also warned that some of the language in the bill could be contentious and open to debate, which would undermine Revenue Minister David Parker’s hopes for the legislation, that it acts as a non-partisan reporting mechanism that stands the test of time.
In his speech on the first reading of the bill, Parker said he hoped the bill “continues the good work of shining a light on the fairness of our tax system”.
“Tax policy development should not be like a reed in the wind of political change; it’s much too important,” he said.
Officials warned that some of the statements in the bill, like the fact that “GST is regressive”, were contested by economists. Wording like “wealthy people” was “unfamiliar” in the tax context.
Both statements made it into the final bill.
Officials appeared supportive of greater data gathering for the purpose of better understanding the tax system.
Officials said there were parts of the tax system “on which there is little information available”, for example the effective tax rate paid by high-wealth individuals.
These “data deficits”, officials said, “limit the ability of governments to accurately identify and define policy issues”.
“The unavailability of data and analysis also constrains officials’ ability to offer advice on optimal policy responses to current issues. This can lead to relying on information based on overseas systems, which may not be fully comparable,” officials said.
This new legislation could mean better data on the tax system being published more often, improving our knowledge of the tax system.
However, the reporting must also be funded from IRD’s existing budget, meaning it crowds out other work IRD may be doing.
National’s finance spokeswoman Nicola Willis said the law was “ultimately a political exercise dressed up as something else”.
“Tax is by its nature political. It’s very difficult for officials to be neutral in it,” Willis said.
“Tax policies get pushed by political parties and taken to an election for people to vote on.
“It is up to political parties to make the case for changes they propose,” she said
Willis said the legislation put pressure on the IRD to find cash to fund the reports.
Deloitte tax partner Robyn Walker noted that in publishing these reports the commissioner could use “any information held for any purpose but must ensure any data presented is anonymised and aggregated”.
The IRD will have the ability to request data from the public for the reports, including under 17GB of the Tax Administration Act, the section used to facilitate the report into the tax paid by wealthy individuals. That report used a dataset of 311 wealthy individuals and families to conclude New Zealand’s wealthiest were paying half the effective tax rate of ordinary taxpayers on their “economic income”.
Officials warned that regularly gathering this kind of information could create “higher administrative costs” not just for the IRD, but for the individuals turning over information.
The IRD could also gather information specifically for the publication of these reports.
Willis would not commit to repealing the legislation.
“I just don’t think it’s a helpful addition to the regulatory landscape,” she said.