A structural deficit rarely captures public attention. But it should.

At a recent tax policy discussion, the issue was framed plainly: New Zealand’s expected revenues are no longer keeping pace with long-term expenditure. What makes this different from past fiscal cycles is that the gap is not temporary. It is structural, driven by an ageing population, rising healthcare costs, and increasing exposure to economic and climate shocks.

Left unchanged, the outlook is sobering. Public spending is expected to rise significantly as a share of GDP, while debt levels could escalate sharply over the coming decades. The implication is unavoidable. The current mix of tax settings, spending and borrowing is unlikely to be sustainable in its present form.

Two clear themes emerged from the discussion. New Zealand cannot borrow its way out of the problem indefinitely, and debt servicing costs are likely to remain a significant long-term pressure. 
What followed was not just a discussion about revenue. It became a broader debate about the role of the tax system itself. Should it remain primarily a revenue tool, or should it also play a targeted role in supporting growth and investment? 

A system under strain

A consistent theme was that New Zealand’s tax base may not be as broad as commonly assumed.

One gap stood out. The absence of a comprehensive approach to taxing capital gains. Without it, parts of the system risk under-taxing certain forms of wealth accumulation.

At the same time, there was realism about what reform can achieve. Even an ambitious capital gains framework would not generate enough revenue to materially close the structural deficit on its own and would take up to a decade to bear fruit.

This shifts the debate. If tax alone cannot solve the problem, sustainability becomes a question of balance. Revenue, expenditure and economic growth must all play a role.

There was also little appetite for avoiding difficult choices. A consistent message was that fiscal consolidation will require genuine trade-offs, particularly in areas such as pensions, healthcare and welfare. 

Can tax shape behaviour?

If the tax base needs strengthening, could it also be used more deliberately to influence behaviour?

New Zealand’s traditional approach has been cautious. The preference has been for neutral settings, avoiding targeted incentives. That position now appears to be evolving. While there was growing openness to targeted incentives in some areas, there was little support for a return to broad-based subsidies or export incentives. 

Recent initiatives aimed at encouraging investment suggest a growing willingness to use tax as a lever for economic outcomes. Even those historically sceptical of such approaches acknowledged that there may now be a case for intervention in certain areas.

Early indications on the impact of Investment Boost suggest that some firms may be adjusting their investment behaviour. What is less clear is whether it is generating new activity or simply bringing forward decisions that would have occurred anyway. Businesses need certainty before committing to larger capital investment.

This uncertainty underpins a more cautious view. Tax incentives should only be used where there is a clear and compelling case. In many situations, alternative tools such as direct investment, grants or regulatory reform may deliver more targeted and predictable outcomes.

There are exceptions. Research and development was highlighted as one area where tax incentives may be justified, reflecting the high-risk nature of innovation and the limitations of traditional funding mechanisms.

Rethinking competitiveness

The discussion also pointed to a more forward-looking issue: how New Zealand positions itself in an increasingly competitive global environment.

For decades, the country has aligned closely with international tax norms, prioritising stability and predictability. That approach has served New Zealand well. However, the discussion noted that the global landscape is shifting.

Other jurisdictions have used tax policy more actively to advance their own interests, attract capital and lift productivity. This raises a strategic question: whether New Zealand should adopt a more proactive stance to remain competitive.

There was no single answer. But there was a growing sense that maintaining the status quo may not be sufficient in a world where capital is increasingly mobile and policy settings are becoming more contested.

Environmental dimension

Environmental policy, and the role of tax within it, featured prominently in the discussion.

One perspective emphasised the growing fiscal costs associated with climate change. These include disaster recovery and infrastructure adaptation. From this view, environmental pricing mechanisms are not just about emissions. They are also a way of managing long-term fiscal risk. 

Others pointed to the economic implications. Poorly calibrated policies could place pressure on domestic industries, reduce competitiveness, or shift activity offshore without reducing global emissions. 

Despite these differences, there was broad agreement on one point. Climate change presents a long-term challenge that cannot be ignored. The question is not whether to act, but how to design policies that balance environmental goals with economic resilience.

No single lever

If there is a unifying theme, it is this. No single lever will resolve the challenge.

Sustainability will require a combination of tax reform, expenditure discipline and borrowing. The latter is not a sustainable long-term option. It will also require a stronger focus on economic growth. 
Growth, in particular, was seen as central. A more productive economy generates revenue without increasing rates. That makes it a critical component of any long-term solution. 

What emerges from this discussion is not a single policy answer, but a shift in mindset. The tax system is no longer viewed solely as a revenue tool. It is increasingly part of a broader framework for shaping economic outcomes.

For policymakers, the task ahead is one of integration. Balancing revenue, fairness, competitiveness and sustainability.

For CA ANZ members, the message is clear. The direction of travel is changing. The question is no longer whether reform is needed, but how far, and how deliberately, the system will evolve to meet the pressures ahead. Equity for future generations was important.