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.