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Wednesday, January 20

Government to carefully consider tax report

The Government will carefully consider the Tax Working Group's report on options for improving New Zealand's tax system, Finance Minister Bill English and Revenue Minister Peter Dunne said today.

The report identifies a number of issues with the structure, coherence and sustainability of the current tax system, and proposes several interesting and practical options for dealing with them, they said.

"The Government's focus in 2010 is increasing New Zealand's economic growth and productivity," Mr English said. "There is no doubt that good tax policy can play a role in that.

"For ordinary New Zealanders, we're particularly keen to ensure that our tax system rewards effort, encourages savings and helps families to get ahead.

"At a broader economic level, we also want a tax system that helps move us away from our recent preoccupation with borrowing and consumption - at the same time recognising that any changes must be broadly fiscally neutral given that we face several years of budget deficits.

"As we've said, any changes would have to meet tests of equity and fairness, alongside delivering benefits for households and the economy. And given that we face another six years of Budget deficits, they need to be broadly fiscally neutral."

The Tax Working Group report - one of several reviews to have reported back to the Government in recent months - will be considered in coming months as part of Budget decision making.

Mr Dunne said the Tax Working Group had produced a comprehensive report and, in the process, it had helped generate constructive public debate.

He welcomed the Group's call for tax policy changes to be made within a coherent long-term strategy and framework, and for them to be sustainable politically.

"I note the Working Group's concerns regarding the misalignment of tax rates which encourages the use of trusts and companies, with a tax rate of 33 per cent and 30 per cent respectively, to shelter income that would otherwise be taxed at the higher personal tax rate of 38 per cent," Mr Dunne said.

"This is inherently unfair to the wage and salary earner who is then left to bear a disproportionate share of the personal tax burden."

Mr Dunne also expressed concern about the manipulation of family income in some instances to obtain Working for Families tax credits.

"There is growing evidence that trusts and companies, and highly geared residential rental properties, are being used to reduce taxable income and so qualify for Working for Families.

"Such abuse potentially places an unfair burden on the 60 per cent of families who do not receive Working for Families tax credits."

Mr English and Mr Dunne commended the Tax Working Group for its work and thanked its members for the professional job they had done.