{"id":147339,"date":"2025-11-22T01:08:08","date_gmt":"2025-11-22T01:08:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/147339\/"},"modified":"2025-11-22T01:08:08","modified_gmt":"2025-11-22T01:08:08","slug":"treasury-its-a-matter-of-when-not-if-taxes-need-to-rise","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/147339\/","title":{"rendered":"Treasury: It\u2019s a matter of \u2018when, not if\u2019 taxes need to rise"},"content":{"rendered":"\u201cThe overarching weakness of our current system is that we tax income, particularly capital income, in inconsistent ways, and the differences in tax treatment do not reflect a clear policy intent,\u201d Little said.<\/p>\n
\u201cThis distorts people\u2019s decisions about not only what to invest in, but how they choose to work and save. Our tax system incentivises putting savings into housing, penalises certain types of saving when inflation is high, and encourages work and saving through entities like companies.\u201d<\/p>\n
Little didn\u2019t comment specifically on Labour\u2019s proposal to tax capital gains on investment residential property, but his comments suggested this might target middle-income earners more than the rich, who have more of their money invested in businesses and shares.<\/p>\n
Separately, he made the point that all capital income should necessarily be taxed at the same rate, \u201csince not all capital is the same\u201d.<\/p>\n
Little said the way labour income is taxed should be considered in the conversation to get the balance right.<\/p>\n
\u201cThis could also involve considering alternative income tax systems, such as a Norwegian-style dual income tax, which allows for different rates to apply to labour and capital income,\u201d Little said.<\/p>\n
\u201cAlternative systems could give us the ability to reduce tax on productive capital investments without creating inefficient subsidies or making our system less progressive.\u201d<\/p>\n
Little recognised New Zealand\u2019s existing low-rate, broad-base tax system had many benefits.<\/p>\n
But Treasury has for some time been urging governments to change their approaches towards taxing and spending.<\/p>\n
\u201cIf policies are left unchanged, the ageing population and other spending pressures would cause core Crown expenditure to increase from current levels of around 33% of GDP [gross domestic product] to nearly 45% of GDP by 2065,\u201d Little said.<\/p>\n
\u201cIf tax revenue did not increase in response, net core Crown debt would quadruple to 200% of GDP by 2065. These projections show without doubt that our current policy settings are not sustainable.\u201d<\/p>\n
Little recognised that making proper changes would take time and could span \u201cseveral governments\u201d.<\/p>\n
He struggled to identify workable short-term fixes.<\/p>\n
He believed a comprehensive capital gains tax, as was suggested by the Tax Working Group in 2019, presented the main opportunity to broaden the tax base.<\/p>\n
However, it would need to be designed carefully and would take a while to generate meaningful amounts of revenue.<\/p>\n
The costs and benefits of an inheritance, wealth or land tax would also need to be carefully considered.<\/p>\n
Little recognised that because no goods or services are exempt from GST, it is a good revenue earner.<\/p>\n
However, hiking the 15% GST rate would really harm low-income earners and prompt calls for different rates to be applied to different goods and services, which would get complicated.<\/p>\n
Little recognised the Government could also increase personal tax rates on higher incomes.<\/p>\n
The Labour Government added a new 39% rate to annual income over $180,000.<\/p>\n
But Little said the trouble with adding another tier to the income tax system was that it would further increase the gap between the top income tax rate and the 28% company tax rate.<\/p>\n
This would incentivise people to shelter their personal income in companies to reduce their tax bills, as is already the case.<\/p>\n
Of course, more economic growth also supports the Government\u2019s tax take.<\/p>\n
Little said the Government\u2019s Investment Boost policy \u2013 a 20% partial expensing regime for new business assets \u2013 was one of the most cost-effective ways a tax policy could support productivity because it was targeted at new capital investment.<\/p>\n
However, with a price tag of $1.7 billion a year, he noted that funding another policy of this magnitude, while still returning the books to surplus in the next few years, would be challenging.<\/p>\n
Jen\u00e9e Tibshraeny is the Herald\u2019s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.<\/p>\n
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cThe overarching weakness of our current system is that we tax income, particularly capital income, in inconsistent ways,…\n","protected":false},"author":2,"featured_media":147340,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[1887,5095,19134,9858,98652,302,3302,5971,111,43,139,5006,69,1118,31472,1436,21324,2373,1361,61,25187,1455,1316,1533],"class_list":{"0":"post-147339","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-new-zealand","8":"tag-countrys","9":"tag-finances","10":"tag-forward","11":"tag-if","12":"tag-inevitably","13":"tag-its","14":"tag-matter","15":"tag-need","16":"tag-new-zealand","17":"tag-news","18":"tag-newzealand","19":"tag-not","20":"tag-nz","21":"tag-of","22":"tag-path","23":"tag-rise","24":"tag-sustainable","25":"tag-taxes","26":"tag-that","27":"tag-to","28":"tag-treasury","29":"tag-warning","30":"tag-when","31":"tag-will"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/147339","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=147339"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/147339\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/147340"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=147339"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=147339"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=147339"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}