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

David Whitburn — Thu, 04 Feb 2010 02:27:48 +0000

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.

David Whitburn » Tax Working Group summary

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