GST at 17.5pc 'almost inevitable'

JAMES WEIR
BUSINESS EDITOR
Last updated 09:25 30/06/2012

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New Zealand should move to a low-level land tax and cut personal tax rates, retiring PricewaterhouseCoopers chairman John Shewan says.

He also says the "elephant" of rising national superannuation costs means a rise in the GST rate to 17.5 per cent in coming years was "almost inevitable".

Shewan had his last day as PwC chairman yesterday. PwC partner Jonathan Freeman has been elected the new chairman.

Shewan said a land tax rate should be low, perhaps 0.5 per cent of land value each year, and be assessed like a city council rate, with an offsetting fall in the personal tax rate of a few percentage points.

"I still think that is the right thing to do," he said. That idea was rejected by the Government when proposed by the Tax Working Group, which Shewan was part of. "I regret that," he said.

High taxes on personal incomes were the most damaging to the economy for growth and jobs. The most efficient taxes were those people could not avoid, such as tax on spending like GST or tax on land "because you can't hide it".

The Government needed to raise more tax in coming years to pay for the growing bill for national superannuation payments, and that could be raised via higher GST or something else like a land tax.

"In the next three to five years there will be another heavy-duty round of how to design the tax system," Shewan said.

It was almost inevitable GST would need to rise to 17.5 per cent or a land tax introduced in time.

But bringing in means testing for superannuation was seen as politically impossible.

"I think it is nuts that wealthy people receive super from the Government," Shewan said. But in that context he thought it was worth looking at a binding referendum, asking voters to look at raising the age of entitlement for super.

"It is the elephant in the room. I was alarmed at the (projected) 40 per cent increase in super (costs) between 2011 and 2016 to $3.8 billion more, that's a lot," he said. Even lifting GST to 17.5 per cent would raise only $3.3b.

"Unfunded liabilities are dangerous things," Shewan said.

New Zealand's tax system was a "complete wreck" in 1984, but was now one of the strongest and most robust in the world.

The basket cases of Europe, such as Greece, Italy, Spain and Portugal, shared a common thread of poor tax systems, with high levels of tax evasion and fraud. "They regard paying tax as voluntary," he said.

In contrast, in New Zealand most felt they should pay their fair share of tax. Shewan said he was "very proud" of the tax system here.

The Department of Inland Revenue has had a string of wins in recent years against tax dodges worth billions of dollars which led to a new book to clarify the rules around tax avoidance.

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Shewan said last year that that reflected "bad and sloppy" tax policy in the past.

Some big bank transactions, worth about $2b, that were deemed tax avoidance, dated back to the late 90s but were not finally settled by agreement until 2009.

The arrangements had effectively allowed Westpac to choose a tax rate substantially below the country's 30 per cent corporate tax rate.

Contact James Weir
Business editor
Email: james.weir@dompost.co.nz

- © Fairfax NZ News

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