Tax reform set to be radical but 'fairer'

BY VERNON SMALL

Property investors face higher taxes and company taxes could fall as the Government considers radical options for reform.

A tax working group, led by Victoria University professor Bob Buckle, will today issue its 70-page report outlining options for change.

They include aligning the top personal, trust and business rate at 30 per cent, cutting the company rate below 30 per cent to remain competitive with Australia, introducing a broad-based land tax and a possible increase to GST.

Prime Minister John Key said yesterday the Government was looking at ways to reward effort, encourage savings and help families get ahead. Mr Buckle said the group would set out a fairer tax system that minimised the costs of collecting taxes and reduced impediments to productivity and growth.

The Government has left all options open except a capital gains tax on the family home.

But it has said the changes must be roughly cost neutral, meaning cuts in one area would need to be funded by extra income in others.

The Government was forced to drop plans for personal tax cuts last year after the global crisis plunged its books into the red.

Mr Key again refused yesterday to rule out an increase in GST, but signalled a move was likely on the tax paid by property investors as the Government looks to boost the incentives to invest in productive areas of the economy.

Under current rules, investors can offset losses on rental properties against other income.

About $200 billion is invested in the sector, but last year it cost the Government half a billion dollars in tax credits.

Mr Key said he was keen to close loopholes and redistribute that money through lower personal taxes. But it was "the $64,000 question" as to how bold the Government would be. Its response would be outlined in the May Budget. Not all of the working group's recommendations would be accepted.

Options for taxing investment property, considered by the group, included an assumed return of 6 per cent on the value of all investment properties, which would raise a net $850 million a year; investment properties ring-fenced, so losses could not be offset against income elsewhere, and scrapping the depreciation allowance on buildings.

The Australian Government's response to a parallel tax review is expected to be made public in March, and is likely to include cuts to the company tax rate.

Stock Exchange chief executive Mark Weldon has warned New Zealand must be ready to lower its corporate tax rate below 30 per cent or risk a big flight of capital to Australia.

But Mr Key said a decision on tax reform could be made in New Zealand without waiting to see what happened across the Tasman.

Though the "headline rate" was important, businesses in Australia also faced other taxes.

- © Fairfax NZ News