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Taxpayers can hope to deliver more of their income in the future as the Government seeks to recoup the cost of its Covid-19 rescue package.
The money being pumped into the economy to offset the impact of the pandemic and the resulting shutdown will create the largest increase in New Zealand government debt in decades. ASB chief economist Nick Tuffley predicted that the debt could reach $ 100 billion.
But while the focus right now is to ensure that New Zealanders have money coming into their homes to stay afloat, it will eventually shift to how to extract cash to pay off debt.
Tax economists and commentators say there are several ways you could try to do this.
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PAYE
One of the best options is for a change in the upper personal tax bracket, which currently has a 33-cent-per-dollar income tax of more than $ 70,000 a year.
Iain Craig, chief tax officer for BDO, said PAYE and GST were the largest and most efficient revenue collectors. Increases in the maximum personal tax rate, combined with an increase in the administrator tax rate, could be an effective way to raise more, he said.
“Those who still win only pay a little more.”
It would be important that the maximum tax rate is not too high, so as not to kill entrepreneurship, he said.
Economist Shamubeel Eaqub said New Zealand could develop a more progressive tax system like Australia’s that would increase the amount of income available to low-income households without changing overall tax collection.
HEALTH TAX
A wealth tax could also be up for debate. This is a tax that is collected each year based on a person’s net wealth, including things like their property and other investments. Sometimes there are exemptions or thresholds to allow a certain level of wealth before taxes go into effect.
Infometry economist Brad Olsen said this was becoming increasingly attractive to many people, as there was a growing sense that the wealthy might get richer from the crisis, while workers got worse.
“Particularly with the widespread loss of jobs and the economic impact being considered even as the stock market remains in a healthier condition of what the general economy looks like, so there could be a growing feeling of the need to ensure that financial markets move at the pace of the general economy conditions. “
Tax expert Terry Baucher said he expected substantial tax changes. “An estate tax is something that has been floating around for some time. The Fiscal Working Group was not really interested in the idea, but it should be.”
He said it would need to be comprehensive to function well. Voters may be willing to endorse it if combined with other benefits: When GST was introduced, it was sold along with a reduction in income tax.
TOM PULLAR-STRECKER / MATERIAL
One of the best options is for a change in the highest personal tax rate, which currently applies to a rate of 33 cents on income of more than $ 70,000 a year.
CAPITAL INCOME TAX
Olsen said a capital gains tax (CGT) could “very well” return to the table to some degree in the future, despite Prime Minister Jacinda Ardern having ruled it out at this stage.
The economy is likely to recover before assets revalue significantly again to generate large CGT bills, he said.
But Baucher said that because a CGT would probably only apply to transactions, it might not generate the necessary income if people went through a period of no asset sale. In the United States, CGT’s revenue-dependent areas had noticed a significant drop in revenue during the global financial crisis when sales slowed.
If the government wanted a predictable revenue stream, a CGT might not be the way to deliver it, he said.
But he said that any of these types of changes would be unlikely for a couple of years, while the government focused on getting the economy moving again.
SUPERANNUATION
A tax could be introduced on people who earn above a certain income level and also receive the pension.
This idea was presented by Susan St John as part of the Retirement Commissioner’s review of the retirement income policy.
San Juan suggested keeping super, as a universal concession. But when other income was earned, they should be taxed progressively. In one scenario, someone who earns $ 123,000 would be taxed effectively on the same amount they received from the pension.
ENVIRONMENTAL TAXES
Olsen said it could be considered an environmentally based tax when the recovery phase was underway to generate revenue, but also to reinforce the government’s goals of reducing carbon emissions and achieving other environmental goals.
That could mean an additional tax for heavy emitters or polluters.
“Throughout all of this, it is important to remember that the reason the government can currently borrow significant amounts to cushion the Covid-19 economic coup is because of previous spending and tax decisions that saw previous taxes used to ensuring that debt remains low in good economic condition sometimes.
“Essentially, paying off our debt during the best economic times, which may require different forms of taxation, can be seen as an implicit pandemic or other economic shock, sure the government has on behalf of the New Zealanders, and it is important that we pay once the economy recovers so that we can rebuild our reserves and prepare for the next economic shock. “
INFLATION
Eaqub said the country could pursue a high inflation strategy in the short term.
“Ideally, we should seek quantitative easing in a very big way and then prepare the country to live with relatively high inflation for a period of, say, five years … this will also correct some of the overly stretched asset prices without that people need to make difficult sales. “
