The contenders are Jim English’s incumbent National Party and Jacinda Ardern, who is soaring in the polls after taking leadership of the Labour Party just six weeks ago.
“Both the National and Labour parties have indicated that they will continue the implementation of reforms to counter BEPS,” Brendan Brown, partner at Russel McVeagh, told International Tax Review.
“The decisions taken by the current National government already go further in some respects than any of the OECD's BEPS recommendations, and the opposition Labour Party has hinted at even more aggressive measures, such as reviewing tax treaties and considering a diverted profits tax.”
Most of the National Party’s proposed post-election tax changes relate to personal taxation. For example, the party says it will increase the lowest two taxable thresholds, from $14,000 and $48,000 to $22,000 and $52,000 respectively – to give low and medium owners a boost in income.
The Labour Party, however, plans to introduce a DPT which it says will bring in an extra NZD 600 million ($438 million) from multinational companies over the next three years. The National Party has a small lead in the polls, but Labour has surged under Ardern’s leadership and is more likely to be able to form a coalition government with sympathetic parties.
“If multinationals aren't prepared to pay their fair share, Labour will introduce a diverted profits tax, to enable New Zealand tax authorities to impose tax at a penalty rate if they believe that tax has been deliberately avoided,” said Andrew Little, former leader of Labour, when introducing the policy in July.
“The experience in the United Kingdom has been positive, as companies such as Amazon are now booking their profits in the UK rather than in the tax haven Luxembourg,” he added.
Serving Finance Minister Judith Collins, however, challenged the NZD 600 million figure, saying that it is more likely the DPT would bring in around half that. She also said that the proposed 40% rate of the DPT was “draconian” and “harsh”.
While the DPT has got international businesses in New Zealand worried, it has “not really” been a major talking point in an election which has focused more on domestic issues such as personal taxation, said Brown.
“Of more immediate significance, Labour has announced that it will increase funding to Inland Revenue for enforcement against multinationals,” he added.
Other parties support additional taxes
The Green Party, which could combine with Labour in a coalition government, has proposed a sugary drinks tax similar to the one in Mexico and slated for introduction in the UK. It would also introduce new taxes on waste, commercial water use and carbon pollution.
Similarly, The Opportunities Party (TOP) has proposed a tax on added sugar in drinks, which would be charged at three cents per gram ($0.02/g), and increase tax on alcohol. The party would also legalise, regulate and tax cannabis, using the proceeds to increase funding for the mental health sector.
The Green Party also wants to introduce a capital gains tax. While Labour at first seemed open to considering such a tax, and has committed to a tax working group to make New Zealand’s tax system fairer, Ardern has now ruled out any new taxes – aside from the DPT – during Labour’s first term.
Tax ‘attack ads’ working
Labour has suffered from attack adverts by the National Party, which has convinced some people that Labour will introduce new taxes affecting individuals. A tax on commercial water use proved particularly controversial for the agricultural, horticulture and forestry sector, which is responsible for a significant proportion of New Zealand’s exports and employment. Talk of introducing a capital gains tax – long discussed in the country – which could affect family homes has also proved unpopular.
The National Party’s attacks in these areas have proved effective, blunting the so-called ‘Jacinda effect’ which had been enjoyed by the Labour leader. She moved to counter the criticism by pointing out that any major tax changes will not introduced until the next parliament, effectively giving voters a chance to veto them.
“Labour will set up a tax working group, to ensure that there is a better and fairer balance between the taxation of income and assets, in particular the capital gain associated with property speculation,” says a document entitled ‘Labour’s Tax Plan’. “The outcomes of this working group – if any – will not take effect until the 2021 tax year.”
Successive governments have brought in such working groups, most recently the National Party in 2010. However, Brown feels that a key development to watch will be whether the working group recommends implementing a comprehensive gains tax, and what a Labour government’s response would be to that.
“Previous governments on both sides of the political divide have seen a capital gains tax as politically unpalatable, but the Labour Party seems to be softening to the idea and one of its potential support partners (the Green Party) supports a capital gains tax,” said Brown.
While Ardern managed to stem the political damage from her party’s perceived willingness to introduce new taxes by promising it would not do so, Labour’s resolve could be tested if it requires support from the Greens, which have held 14 seats (11% of representatives) at the last two elections.
Strong and stable?
For businesses seeking stability, the National Party is probably the best place to look. It has the advantage of incumbency and experience, and will likely make few major tax changes beyond what is required of New Zealand by BEPS – which is not a great deal, as national legislation already announced in August goes further than the minimum BEPS standards.
“The current government released their decisions in August regarding implementation of BEPS decisions,” said Brown. “In some respects these final decisions go further than any of the OECD's BEPS recommendations. The government continues consultation on the design of legislation to implement these proposals and if re-elected plans to introduce a bill to Parliament by the end of the year, to be enacted in the first half of next year.”
“The National Party's policies are to continue with BEPS reforms and the personal tax rate reductions scheduled to take effect next year,” said Brown. “So for businesses, a re-elected National government should not produce any surprises.”
However, Labour’s polling has been strong since Ardern took control of the country. She fits the profile of the international trend of the left bouncing back from a disastrous 2016.
The final poll, released on September 21, put the Nationals on 45.8% and Labour on 37.3%. The Green Party and New Zealand First polled 7.1% each, indicating both parties may have the potential to be kingmakers.
