The Tax Working Group
has recommended a range of comprehensive tax changes including raising GST to
15 percent and taxing capital gains on residential rental
properties.
Options suggested in a report by the group today include a
risk-free rate of return method for calculating capital gains on investment
properties.
The report also has an option of a low-rate land
tax.
The risk-free rate of return method works as follows: if
someone owns a $300,000 property with a $200,000 mortgage and the annual
risk-free return rate is set at 4 percent, taxable income is calculated at 4
percent of the $100,000 of equity in the property, giving a tax of
$4000.
Someone on a personal income tax rate of 38 percent
therefore ends up paying $1520 of tax.
"Put simply, the tax system is broken and needs to be
fixed," group chairman Professor Bob Buckle said.
"We've suggested a number of ways this can be done."
There was a once in a generation chance for New Zealand to
have a world class tax system, he said.
The report also recommends increasing GST to 15 percent,
saying this would have merit on efficiency grounds, but any increase in GST
would require compensation for those on low incomes.
The report also says that the company top personal and
trust tax rates should be aligned to improve the integrity of the tax
system.
Prime Minister John Key says the Government will ponder
the report in coming months, as part of this year's
budget.
The Government has refused to rule out any tax changes
apart from a capital gains tax on the family home.
Recommendations from the Tax Working
Group
- The company, top personal and trust tax
rates be aligned;
- the company tax rate needs to be
competitive with other country's rates, particularly Australia's;
- the top personal tax rates should be
reduced as part of an alignment strategy and to help growth;
- increasing the goods and services tax
to 15 percent would have merit on efficiency grounds but would require
compensation for those on low incomes.
Options for broadening the tax base:
- A majority of the Tax Working Group
supported taxing returns on residential rental property using the risk-free
rate of return method;
- most members supported the introduction
of a low-rate land tax;
- the removal of a 20 percent
depreciation loading on plant and equipment;
- removing tax depreciation on buildings
if they do not depreciate in value;
- changing thin capitalisation rules for
foreign owned companies;
- a comprehensive review of welfare
policy and how it interacts with the tax system;
- institutional arrangements to
maintain the overall coherence and integrity of the tax system.
3 News / NZPA