Tax Working Group Submission
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The core issue we believe the Tax Working Group (TWG) should be focused on is how the tax system influences investment incentives for productivity activity, and how the tax system can be more fairly balanced in a way that will facilitate higher growth in productive industries.
This needs to especially focus on high-value activities which provide exports and import-competing income and well paid jobs, like manufacturing. Productivity in New Zealand has lagged for decades behind many of our competitors and all manufacturers know the challenges involved in trying to access capital for investment in their businesses.
Promoting growth in high value sectors of our economy critical for ensuring long term sustainable growth for New Zealand – this growth allows living standards for everyone to increase over time, and helps expand the tax base to allow New Zealand to pay for the services and infrastructure investments we need to make a more prosperous country.
One of the most obvious and most significant areas of misalignment in our tax system is that while productive activities are taxed in the form of wages and profits, speculative activities, such as the capital gain obtained through investment properties, are largely untaxed. While the introduction of the bright line test appears to have helped as a stop-gap measure, the Tax Working Group should investigate more long term policy that avoid an arbitrary time frame as the measure for speculation and investment.
The test for what’s a speculative activity is quite simple – it’s an investment where the operational returns alone wouldn’t be enough to justify the investment. (Auckland) rental properties and many dairy farms, which rely on capital gains for returns, with profits largely used for debt servicing are prime examples.