Over the past year, the Tax Working Group has engaged in a national conversation with New Zealanders about the future of the tax system. Thousands of New Zealanders – including iwi, businesses, unions and other organisations – have had their say. It is clear to the Group that tax matters to everyone.
There is good reason for this passion. The tax system underpins the living standards of New Zealanders in three important respects: as a source of revenue for public services, as a means of redistribution, and as a policy instrument in its own right. The Group has been alert to these multiple purposes in the course of its work.
The Group also considers it is important to bring a broad conception of wellbeing and living standards to its work, including a consideration of Te Ao Māori perspectives on the tax system. This approach reflects the composition of the Group, which includes members with a diverse range of skills and experience, including from beyond the tax system.
As part of this work, the Group has begun to develop a policy framework that would bring together concepts from Te Ao Māori, the four capitals of the Living Standards Framework, and principles of tax policy design.
This framework – He Ara Waiora – draws upon the concepts of waiora (wellbeing), manaakitanga (care and respect), kaitiakitanga (stewardship/ guardianship), whanaungatanga (relationships and connectedness) and ōhanga (prosperity).
The Group’s work on He Ara Waiora appears to have resonated with many people. In light of this feedback, discussions have been initiated with the Treasury about how He Ara Waiora could inform the ongoing evolution of the Living Standards Framework.
One of the key tasks for the Group has been to assess the structure, fairness and balance of the tax system. Although the tax system has many strengths, the Group has found that the tax system relies on a relatively narrow range of taxes and is not particularly progressive. There are a number of reasons for these outcomes but two issues it can address within its Terms of Reference stand out for the Group:
- The treatment of capital gains. Unlike most other developed countries, New Zealand does not generally tax income in the form of capital gains (except in some specified instances). The inconsistent treatment of capital gains reduces the fairness of the tax system. It is also regressive, because it benefits the wealthiest members of our society. Both effects weigh against the sense that New Zealanders are all making a fair contribution, and risk undermining the social capital that sustains public acceptance of the tax system and so our shared prosperity in the long term.
- The treatment of natural capital. New Zealand makes relatively little use of environmental taxation. There are clear opportunities to increase environmental taxation, both to broaden the revenue base and to help address the significant environmental challenges we face as a nation.