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Pricing the ‘savings’ of the Tax Working Group’s Proposals

February 4th, 2010 | Author:

The Victoria University of Wellington Tax Working Group’s (“TWG”) Report has got much media attention, whether on Television, newspaper, radio or the internet.  The report is interesting and whilst I admire the aims of striving to provide a “fairer” tax system, with a consistent top tax rate amongst companies, trusts, PIEs and individuals, there are some gaping holes in it.

Firstly here are the estimated costings of what the TWG has proposed:

Option

 Indicative annual

revenue ($ billion in

2009/10 prices)

Notes
Raising GST

  • to 15%
  • to 17.5%
 Up to $1.9

Up to $3.9

 These estimates include automatic adjustments to benefit levels and superannuation payments. Substantially less revenue if there is other compensation for lower income groups.
Imposing a Capital Gains Tax –

  • (1) Comprehensive
  • (2) Excluding owner occupied housing
 (1) Up to $9.0

(2) Up to $4.5

 Estimates are based on full implementation, accrual basis and 2% rate of real property inflation. Lower revenue would be expected with a realisation-based tax, particularly during implementation. Revenue generated will also depend on the particular design of the CGT.
Land Tax Up to $2.3 (for 0.5% tax rate) Based on an assumed limited fall in land prices due to tax; revenue reduced by about $0.6bn if land tax is deductible against taxable income for businesses.
RFRM on residential

investment property

 Up to $0.7

(plus up to $150 million in tax saved on loss offsets from rental properties)

 Based on 6% (nominal) risk-free

return; rental property only.  This

estimate excludes other residential investment property (e.g. second homes).
Remove depreciation on

buildings

 Up to $1.3 Based on no loss offset if buildings sold at a loss; estimated cost of allowing offset = $300 to 600 million.
Remove 20% depreciation

loading on new assets

(excl. buildings)

 Up to $0.3 Lower revenue gain if loading reduced rather than eliminated.
Changes to thin

capitalisation rules

 Up to $0.2 Changes thin cap ‘safe harbour’ from 75% to 60%.
Source: PriceWaterhouse Coopers Tax Tips 20 January 2010, Victoria University of Wellington Tax Working Group Report.
On Tuesday 9th February our Prime Minister will announce his thoughts on this.
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