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The way ahead for New Zealand

Today the New Zealand Prime Minister John Key made a statement to Parliament which maps out the Government’s main priorities for the year ahead, including rebalancing the tax system. After listening to John Key’s speech I agree on a number of issues and feel this makes a lot of sense for this country. The following are the three most important elements for me:

  1. If we need some more tax to help our country to invest and grow, then raising the Goods and Services Tax (GST) is fair and is sensible, because it taxes those who spend and promotes saving and investment. Remember our GST system in NZ is very simple and far less complex than Australia and the United Kingdom, so raising (and lowering) GST rates is relatively simple. This is even more sensible if personal income tax rates are lowered at the same time.
  2. While John Key did not explicitly state how the tax of property will be affected, he did say more tax revenue will be gained from the NZ property investment market. I assume this means the Government will stop taxable depreciation of residential property investments. Generally residential property increases in value. Allowing taxable depreciation has been used by many investors as a way to off-set taxable losses against their salary income and use the resulting tax refunds or saving as a way to help finance the properties. As a country we need to decrease our love with investment in property and develop a more sophisticated understanding of different investment instruments, and anything that helps our capital markets will be great for the growth and export capability of current and prospective NZ public companies.
  3. Aligning the top tax rates just makes sense. For too long we have used complicated tax structures to minimise tax. If the top rates for companies, personal and trusts are the same then the benefit of using complex structures is removed, making compliance with tax for most SMEs in NZ much easier.

Some may and some may not agree, but that’s how I see it, although with an open mind to other’s arguments and thoughts. I eagerly await the Budget release on the 20th May to get into the details.

Hamish Edwards is the co-founder of Xero and Chartered Accountant.

 

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8 comments

Blair
9 February 2010 #

If/when the GST rate changes, I’ll feel sorry for the people still using MYOB who will have to buy a new version..

Tony Ryburn
9 February 2010 #

I totally agree with the need for us to decrease our love of property. When it comes to investment, monogomy is a bad idea. We Kiwis need to commence a love affair with our share market. Australians invest in their share market far more enthusiastically than we do in ours and I believe this is a significant, and generally overlooked, reason why the Australian economy outperforms ours.

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Paul Lattimore
9 February 2010 #

I believe we are about to see the bubble truly burst on the housing market. This is based on a combo of higher interest rates, new property tax regimes AND the first of the Baby Boomers looking to cash in their rentals for retirement in 2011. First home buyers should keep their powder dry for another twelve months.

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Richard Seager
10 February 2010 #

GST is a regressive tax in that it discriminates against the poor in our society so increasing it is just a case of scouring the poor for the benefit of the better off. Typical National policy and on the back of a the 25 cent increase in wages maybe the poor in NZ need to think about rebelling.

As for housing, yes it’s way out of sync but that’s not a NZ only problem, here in Melbourne it’s absolutely ridiculous now. Interestingly in most of Europe and the US housing is considerably cheaper. For some reason the UK, Australia, NZ and Ireland have had their housing markets reach ridiculous levels. I can’t see that changing here in Australia unless immigration goes from a 150k a year to 50k a year.

Hamish Edwards
12 February 2010 #

While I am not property expert I understand the arguments that various people are making about the impact of these (likely) tax changes will have on property prices. That said the John Key is saying there will be no specific land tax or tax on capital gains related to property transactions (unless you are a property developer), like there is in Australia. That has got be to good news for all current and prospected home owners.

DHH Coventry
19 February 2010 #

It’s a really good way to further tax the poor as well.
Those who only spend because at the end of their budget after food and electricity is no saving.
Tax ‘em double. Let God sort ‘em out.

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