8 December 2008

Inland Revenue Briefing Released

Revenue Minister Peter Dunne has welcomed the release today of Inland Revenue’s briefing for the incoming Minister, which he says is “a helpful and constructive document that carries some very important messages for the new government.”

“As the briefing points out, the tax system is generally working well but there are growing pressures on both tax policy and the tax administration,” Mr Dunne said.

“These growing problems, if left untreated, have the potential to erode Inland Revenue’s ability to deliver a high-quality tax system, the briefing advises.

“On the tax policy front, the main challenges are those identified in the department’s 2005 post-election briefing. The first is the continued pressure that globalisation exerts on countries around the world to lower their company tax rates. Maintaining a robust company tax base in the face of this pressure is a particular concern for New Zealand, with its relatively heavy reliance on company tax and the relatively high level of trans-Tasman investment.

“The other main policy challenge is the use by individuals of companies and trusts to shelter their income from higher rates of personal tax, which results from the gap between the company tax rate and higher marginal income tax rates.

“To resolve this problem of misalignment, I have long advocated a 30/30/30 approach to tax rates, which would mean reducing the top personal tax rate and the trustee tax rate to the level of the new company tax rate of 30%. I believe there is scope for achieving these remaining tax reductions, despite our present financial uncertainty.

“The main challenge facing the tax administration, the briefing points out, comes from the pressure on Inland Revenue to administer a growing number of non-tax programmes. They include Working for Families tax credits, child support, student loans, paid parental leave and KiwiSaver. Inland Revenue has done an excellent job in delivering these programmes but the extra workload has put pressure on its systems, which were designed for tax matters and have had to be progressively modified and adapted to take on the additional social policy programmes.

“All this has created a less agile administrative system that makes it more costly to take on urgent or important new programmes, the briefing advises. For that reason, the department is looking at ways of equipping its infrastructure and staff to deliver better value for money, allowing it to respond quickly and efficiently to changing government expectations,” Mr Dunne said.

The briefing is available at www.taxpolicy.ird.govt.nz

ENDS

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