Government accused of 'planting the seed for increased taxation' with proposed Tax Principles Act

The Government is being accused of "planting the seed for increased taxation" with a proposed law that would enshrine "principles" to assess tax policies against. 

In a speech "shining a light on unfairness in our tax system" at Victoria University in Wellington on Tuesday, Revenue Minister David Parker said the Government had no plans to introduce new taxes, but was gathering more information on tax intake to make future tax policy decisions. 

Inland Revenue is investigating how much goods and services tax (GST) people pay across income and wealth bands because data is limited on the effective overall GST rate paid by New Zealanders.

Inland Revenue is also investigating what rate of tax is paid by top earners. The current information, based on the Household Economic Survey, has "severe limitations at the top end", Parker said, because questions don't delve into capital income, for instance. 

Parker also announced a proposed law, the Tax Principles Act, that would include "principles" to assess tax policies against. 

"Political parties will genuinely disagree as to how best to apply tax principles. Voters need to assess their proposals. A reporting framework will help both," Parker said. 

"Our proposal is to require officials to periodically report to ministers about the operation of the tax system, using the principles as the basis for their reporting.

"As to how these, or other, principles are expressed, we seek something that New Zealanders of all stripes see value in retaining and protecting. They need them to be clear enough to avoid ambiguity, without determining outcomes which are political." 

Revenue Minister David Parker and Prime Minister Jacinda Ardern.
Revenue Minister David Parker and Prime Minister Jacinda Ardern. Photo credit: Getty Images

It could, for example, require officials to report on the progressivity of the tax system.

"I will be working closely with officials to develop an appropriate methodology," Parker said. "I would like to see these principles enacted in a Bill before the end of the current Parliamentary term."

ACT leader David Seymour said he suspects the Government is "planting the seed for increased taxation". 

"ACT says there is nothing fair about taxing the life out of hardworking Kiwis who are already suffering from sky-high inflation created by Labour's out-of-control spending," Seymour said on Tuesday.

"While talking about how 'unfair' our tax system is, the minister failed to acknowledge the Government has taken in a massive $14 billion more in income tax revenue than expected due to record inflation. That, minister, is unfair.

"Introducing more legislation and regulations around our currently very simple tax system will only create more bureaucracy and have accountants licking their lips."

ACT leader David Seymour.
ACT leader David Seymour. Photo credit: Newshub / Zane Small

ACT and National have both pledged to remove the top tax rate of 39 percent on income earned over $180,000. It was introduced by Labour after the 2020 election. Both parties also want to reverse Labour's decision to remove tax deductions on interest costs for rental properties.

The Government has ruled out a capital gains tax, despite the Tax Working Group recommending one in 2019. Labour in 2020 also poured cold water on the Green Party's call for a wealth tax

Parker said he accepts that "you can never take the politics out of tax" but believes it's time to "report actual outcomes against settled tax principles". 

"Yes, there will always be political disagreement about the last few percent of taxation, and debates about how progressive the tax system should be. I am not trying to avoid nor blunt that," Parker said. 

"I am enjoying the current political debate - with National promising to both cut taxes for those earning incomes above $180,000 and to reinstate investment-distorting tax breaks for landlords.

"Having made my political point, and highlighted our very different approach to that of the Opposition, I readily accept you can never take the politics out of tax. We can, though, have a fact-based discussion."