Taxation plans ‘illuminating’

Press, 28 July 1989, Page 3

Taxation plans ‘illuminating’

Table No. 2 of Mr Caygill’s Budget speech entitled “Financing of Net Government Expenditure” is illuminating. Total taxation revenue is estimated to increase to nearly $26 billion in 1990, compared with $21.5 billion in 1988, an increase of nearly 21 per cent over two years. During this same period the gross national product has been static. The tax gatherers must bless GST — up 44 per cent on 1988. Even individuals can feel benevolent. Their over-all tax payments have risen from $11.6 billion in 1988 to an estimated $13,985 billion in 1990, an increase of 20 per cent in two years. Land tax is also interesting. The tax base will increase with the replacement of the present $175,000 exemption with a new $lO,OOO threshold, the rate will decline to 1 per cent in 1990 and many present exemptions will be reviewed — although farms, residences, forests, charities and recreational land will continue to be exempt. But wait for it. Over-all receipts from land tax are estimated at $290 million in 1990, compared with $7l million in 1988. The increased take suggests that boarding .houses, private hotels, hostels, old people’s homes, historic buildings and even local and public authorities could lose their exemption. Capital gains tax remains under review. It is still the Government’s intention to publish a discussion document on the topic later in 1989. The Government an-

Commentary

A commentary on the Budget by the Christchurch office of Price Waterhouse, chartered accountants.

nounces the virtual conclusion of an important chapter in tax reform. Chapter is the operative word. There are still areas such as capital gains attracting their interest. The Government states that effort is now to be directed to simplifying the system of tax collection, making compliance easier, but this appears contradictory. The 1989 Budget further increases the impost on the private sector in regard to compliance. We now have proposals: • Employers will forward PAYE tax twice a month rather than monthly, and within five days of each fortnight. • The replacement of the land tax exemption of $175,000 with $lO,OOO will mean a large increase in the number of land tax returns for taxpayers to complete and file with the Inland Revenue Department. All this on top of recent reforms over the last 18 months, including new forms to complete for the imputation system, the international tax regime, the superannuation contribution withholding tax, the foreign dividend withholding tax, fringe benefit tax on retirement and redundancy payments, changes to the law on the taxation of dividends, changes to be accrual rules, changes to PAYE

rates, fringe benefit tax, GST, provisional tax, and so on. Where will it all end?

There is much comment on social welfare. A reduction in the number of separate benefits and their consolidation in a Universal Benefit looks like history repeating itself. The proposed special retirement tax which will replace part of the present income, company, and related taxes, sounds like the old Social Security Tax of l/6d in the pound reborn. Over all, apart from the continuing worrying trend in compliance costs and complications the Budget has a thrust towards rationalising benefits, and further extending the tax base, while at the same time accelerating the payment of tax. When the bringing forward of many tax payments is in place, pressure could once again return to rates of tax and their manipulation. Perhaps our tax system is getting more and more like a drift net. As we all know, revenue is much less of a problem for Government compared with expenditure. Our Government must keep in perspective its appetite for funds compared with j leaving sufficient liquidity and wealth in the community to allow the G.N.P. to grow.