The beauty of the Tax Working Group’s proposals for reform is they cut the ground under the feet of those who claim the Govt would be taking from the poor to give to the rich. In closing loopholes which allow property investors to escape tax, and putting forward a land tax (with exemptions for farmland), the Govt could gain enough revenue to be able to bring the top income tax rate into alignment with the corporate rate, and lower taxes on middle income earners. Around $216bn is invested in rental properties and yet this yielded a negative $150m in revenue to the Crown last year. Lowering or removing depreciation allowances on property could produce several hundred million dollars in new revenue. Another option is to impute, say, a risk-free 5% return on rental property, which would again raise significant revenue. A low rate of land tax, (with exemption for land valued at less than $20,000 a hectare) on top of the other property tax changes, would produce enough revenue to balance across-the-board cuts in income tax scales.

A capital gains tax did not find favour with a majority of the Tax Working Group (which coincides John Key’s thinking). Lifting GST might be politically problematic. Now it is over to Cabinet to analyse the report and come up with changes which repair the damage done by the previous Govt, and builds into the system the kind of incentives which can galvanise the productive sector. Again, there’s no silver bullet, and the Govt could face howls of rage from the property sector. This will be a real test for Key and his Ministers.

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