3. DAVID BENNETT (National—Hamilton East) Link to this
to the Minister of Finance
What tax changes take effect on or around 1 April?
Hon BILL ENGLISH (Minister of Finance) Link to this
A number of the tax changes that were announced in the last Budget come into effect from 1 April. The company tax rate will be cut to 28c in the dollar, as will the tax rate faced by unit trusts, life insurance policyholders, and some other savings vehicles. A number of investment property - related tax changes will occur on 1 April, including removing the ability of landlords to claim depreciation on most buildings. The definition of income for social assistance like Working for Families and the community services card will be tightened, to stop people manipulating their circumstances in order to claim those forms of income support, and there will also be higher tax rates on foreign owners of New Zealand assets, to ensure they meet what we believe should be their full obligations in New Zealand.
How will these changes help to rebalance the economy towards savings, investment, and exports, and how will they make the taxation system fairer?
They are important measures for rebalancing our economy—for instance, the higher effective tax rate on housing will reduce the probability that the New Zealand economy will repeat the housing binge that we went on in the mid-2000s, which used up a lot of capital for no particular productive output. The lower company tax rate will mean we have a lower company tax rate than Australia and, along with the exchange rate against Australia, it will make our companies much more competitive than they have been in the past, and that will help to increase our exports.
Lowering the company tax rate will cost about $1.1 billion over the next 4 financial years. The reductions in tax on savings vehicles will cost about $170 million. These are more than offset by other measures, which are expected to raise about $3 billion over the next 4 years. By 2013-14 the overall package of tax changes announced in the 2010 Budget will be just fiscally positive.
The tax package was necessary because through the last decade this economy became very unbalanced, when our ability to earn income actually shrank, and our ability to spend grew quite significantly. There are not many levers that a Government can pull, but one that it can pull is the tax lever, and it is important because it has pervasive incentive effects through the economy. So the tax package was designed to increase tax rates on consumption and housing speculation, and lower tax rates on savings, investments, and exports.