We must hark back to the 1980s Lange Govt to find tax reforms seriously aimed at promoting economic efficiency and growth by encouraging businesses and households to make decisions on their economic merits rather than for tax purposes. A much improved economic framework resulted from trade liberalisation, the elimination of agricultural subsidies, those tax measures and other planks of Rogernomics. Deborah Roseveare, heading the OECD’s NZ desk, referred to them last year when affirming our living standards are “quite a lot below the OECD median” and don’t seem to be catching up. We rank near the top for our policy and regulatory framework, but our productivity and saving are near the bottom; without the reforms of the 1980s and 90s, we would have been even worse off.

Capital Gains Tax. The OECD report which prompted her remarks prescribed better savings (and welcomed the Clark Govt’s KiwiSaver as a step forward). More important, NZ is urged to structure its tax system so it helps lift living standards. To encourage people to work, save and invest, it should be a flatter, more broadly based system with lower income and company taxes and higher GST. The OECD report focused on NZ’s reliance on property as a savings vehicle as well. Roseveare says this suggests we need a capital gains tax (“a policy politicians dare not name”, as an NZPA report described it). Fast forward to Treasury’s briefing paper for the new Finance Minister. Its proposals for boosting productivity and shaping a better business environment include a capital gains tax on property to encourage savings in other instruments.

Too Hard Basket. But NZ politicians of most stripes are programmed to shy from hinting they might muse on such advice, even momentarily. Finance Minister Bill English accordingly rejected it (and several other Treasury suggestions for improving NZ’s economic performance, including increased GST). He insists the Govt’s priority is income-tax cuts to help people through the recession. Capital gains tax and higher GST aren’t part of the programme. This is a replay of Labour’s Michael Cullen tainting the work of the McLeod tax review before it had been appointed by trumpeting his opposition to a flatter income tax regime or capital gains tax. NZ’s poor economic performance over the past 20 years doubtless has been influenced by broader economic issues than the lack of a capital gains tax. But nothing should be tossed into a basket labelled “too hot to handle.”

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