The Government’s Revenue Strategy
This revenue strategy sets outs the Government’s objectives for the tax system and tax policy, in the context of its economic and fiscal strategies.
The Government is committed to improving the well-being and living standards of all New Zealanders through productive, sustainable and inclusive growth. We will focus on lifting productivity and wages, transitioning to a net zero emissions economy, helping our regions thrive, updating and building infrastructure, growing exports, supporting Māori and Pasifika aspirations, and reducing child poverty. We will measure our success in terms of how we protect our environment, improve our skills and health, strengthen our communities and deliver shared prosperity.
Underpinning our economic strategy is our commitment to responsible fiscal management within five Budget Responsibility Rules which include ensuring that New Zealand has a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy. We will ensure we raise sufficient revenue to achieve our fiscal objectives of delivering a sustainable operating surplus and ensuring net debt falls to 20 per cent of GDP within five years of taking office. We will do this while maintaining government operating expenditure to within the recent historical range of spending as a ratio of GDP, and prioritising investments to address the long-term financial and sustainability challenges facing New Zealand.
Objectives for the tax system
The primary function of the tax system is to raise revenue to fund government expenditure, in a way that supports economic and fiscal goals.
The Government has established the Tax Working Group to consider what could improve the structure, fairness and balance of the tax system. The Group’s Terms of Reference include an exploration of a wide-ranging set of issues that interact with the tax system, such as the changing nature of work and the role of taxes in improving environmental outcomes. After the Group provides its final recommendations in February 2019, the Government will focus on considering its recommendations and making changes that will improve the structure, fairness and balance of the tax system.
The Government has the following objectives for the tax system:
- A system that is efficient, fair, simple, coherent and collects the tax that is due, on time and in full
- A progressive tax and transfer system for individuals and families.
- A system that promotes the long-term sustainability and productivity of the economy
- A system that supports a sustainable revenue base to fund government operating expenditure around its historical level of 30 per cent of GDP
- A system that treats all income and assets in a fair, balanced and efficient manner.
Another objective of the Government is to continually improve public confidence in the tax system and Inland Revenue. The system should help people meet their obligations, be fair, and inspire confidence. The Government is committed to raising revenue in ways that meet these objectives.
The Government supports a sustainable broad-base low-rate framework for the tax system. This helps ensure that taxes are fair and efficient, and that they impede economic growth as little as possible. It also helps keep compliance costs low and minimises opportunities for avoidance and evasion.
The Government also believes the interface between the tax and welfare systems should support social policy objectives, including reducing child poverty. The progressive tax and transfer system should be as simple as practicable, easily accessible and understandable, cost-effective, support transitions into employment and empower New Zealanders to make informed decisions. The Government intends to establish a Welfare Expert Advisory Group to consider the fundamentals underpinning the welfare system and how to improve the interactions between welfare and tax systems, including a review of Working for Families payments.
The Government believes that the tax system can help in delivering positive environmental and ecological outcomes, especially over the longer term.
The Government will ensure that tax policy development is inclusive, consultative and transparent. This includes making the work programme publicly available, and undertaking regular stakeholder consultation on changes to tax settings.
Tax policy priorities
The Government’s tax policy priorities under this revenue strategy include:
- Considering the recommendations of the Tax Working Group, which is due to report to Ministers by February 2019, and the Welfare Expert Advisory Group.
- Improving public confidence in the tax system and helping people understand that the tax system can help support wellbeing.
- Continuing to update, simplify and improve the integrity of the tax system through Inland Revenue’s business transformation programme.
- Where possible, work in a multilateral way to strengthen the national and global tax system (such as working with the OECD on base erosion and profit shifting).
- Delivering other priorities in the Government’s coalition and confidence and supply agreements.
- Delivering other items from the Government’s tax policy work programme, including:
- social policy;
- enhancing and maintaining the broad-base, low-rate tax system including ongoing work to improve the integrity of the tax system;
- international tax and work to address base erosion and profit shifting; and
- business transformation and information sharing.