Objectives
The overarching objective of the tax system is to raise the revenue needed to fund government expenditure, in a fiscally responsible manner, while doing the least harm possible to economic growth and productivity.
The objective is to move systematically and incrementally toward lower taxes pursuant to a BBLR approach to taxation, which will:
- Improve incentives for labour supply, entrepreneurship, and the retention of skilled labour within New Zealand;
- Improve the quality of investment and savings by decreasing tax-induced distortions that divert savings and investment into tax-favoured forms; and
- Contribute to a wider reform agenda aimed at boosting future productivity growth whilst being sensitive to equity considerations.
As a step toward these objectives, a shorter-term objective is to reduce the economic effects of the most harmful taxes; particularly personal income taxes. As the top personal marginal income tax rate is significantly higher than the corporate and trust tax rates, a short-term objective is to lower personal rates in order to reduce the existing distorting disparity. This is consistent with a medium-term goal of aligning personal, trust, and company tax rates at a maximum of 30%.
Another key short term objective is to boost labour productivity and participation and to retain skilled labour in New Zealand. Since MTRs and ATRs impact on labour productivity, participation, and migration decisions, a reduction in effective MTRs and ATRs will reduce the negative impact in these areas.
In addition, the objective is to achieve the tax reduction in the most cost-effective manner (including funding through the removal or modification of other less growth-enhancing features of the tax system where possible, providing further benefits through rationalisation), with due attention being paid to the government's commitment to equity and wealth distribution, and to the fiscal and macroeconomic effects of the tax changes.
