Date posted: 11/05/2018 5 min read

Fiddle or fix? NZ a guide for Australia's big tax questions

The NZ and Australian Budgets head down different tax paths.

In brief

  • New Zealand Budget will be light on tax – not so Australia’s.
  • Treasurer Scott Morrison unveils $140 billion dollars in income tax cuts.
  • NZ provides guiding light on how to deliver genuine tax reforms.

Michael Croker

Michael Croker, Australian Tax Leader

While the New Zealand Budget next week is expected to be light on tax – with the majority of important and pressing issues hived off to the Tax Working Group – this was not the case in Australia.  

On this side of the Tasman, tax has featured big time in the Federal Budget handed down on 8 May with the Treasurer Scott Morrison unveiling $140 billion dollars in income tax cuts.  

A surge in tax revenue will be used to fund personal tax cuts and there will be another big push to get company tax cuts for large companies through the Senate.  

However, the multi-billion dollar questions for the Australian economy, and its long-suffering taxpayers, is whether the Turnbull Government’s proposed plan will pass the Senate – and whether the Government will continue to tinker with the tax mess or step up with genuine reforms.  

If Australia is serious about genuine reforms, then it should look no further than New Zealand’s tax system as a guiding light.

Taxing times

Read this report where we ask the Government to avoid ad hoc changes to the tax system.

Read here

NZ a “guiding light”

Where Australia’s tax system is complex, New Zealand’s is relatively simple; where our approach to tax policy making is poor, New Zealand’s is an international exemplar.  

In the CA ANZ submission for the 2018-19 Australian Budget we argued that “In a difficult political climate, it is tempting to make Budget tax announcements which are narrow in their scope and punitive for a particular, typically small or non-voting segment of the taxpayer population.”  

The plethora of “announceables” rarely address broader policy ramifications, create enforcement problems, raise only modest amounts in the overall scheme of things and go nowhere near the big picture reforms Australia requires.  

They confuse taxpayers and add to red tape. In the meantime, acknowledged problems with Australia’s tax rules continue to appear too hard to fix.  

Our submission also referenced New Zealand’s Fringe Benefit Tax (FBT) system, particularly the treatment of minor, infrequent benefits.  

Australia’s FBT is a mess. Everybody knows it but still nothing happens. Why not get a bunch of experts in a room and see what they come up with – the so-called ‘sandpit approach’?  

We also used our submission to argue the case for reforming the GST base and rate – failing to do so is to neglect and underutilise one of Australia’s most sustainable tax bases.  

Australia has a relatively low GST rate of 10% when compared to New Zealand at 15% - which taxes roughly 96% of its potential GST base and is considered to have the most comprehensive, simple and efficient GST in the world.  

New Zealand shows that Australia needs to make better use of the GST – not only for the benefits but because of the potential long-term risks if we don’t.  

Work-related deductions have generally been abolished in New Zealand, but the Australian Tax Office is experiencing a disturbing trend in over-claimed deductions and outright fraud in some personal tax returns. The Budget gives the ATO millions of dollars to ‘educate’ Australians and tax agents.  

We are watching the New Zealand Tax Working Group with interest. Like the pavlova, we’ll let the Kiwis perfect the recipe and then claim it was our idea.  

In the meantime, Australians will have to wait and see if the Treasurer’s major tax cut plan passes the Senate.  

There’s no doubt it will bring some welcome relief to many Australian families, but there is already controversy about the benefits flowing to those on higher incomes.  

NZ Budget 2018

Commentary, insights and analysis of the New Zealand Budget 2018

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