New Zealand’s coalition government puts tax centre stage in early acts

Following New Zealand's general election on October 14 2023, the centre-right National Party formed a coalition government with the New Zealand First Party and the ACT Party to establish the 54th Parliament of New Zealand. The new coalition government replaces the previously governing centre-left Labour Party.

Tax policy was at the forefront of the election and it has remained a key aspect of coalition negotiations, with several necessary changes and compromises arising with respect to the parties' positions on tax prior to the election.

Simon Watts is the newly appointed minister of revenue in New Zealand, being the political office of minister for the department of New Zealand's Inland Revenue, although he is not a member of Cabinet.

A chartered accountant by way of background, Watts has worked in banking and finance roles in New Zealand and offshore. He has private and public sector experience, notably serving as the deputy chief financial officer at Waitemata District Health Board from 2016 to 2020.

The National Party's election campaign promised tax relief to the "squeezed" middle class through their Back Pocket Boost, with measures such as:

• Adjusting income tax brackets;

• Increasing eligibility for tax credits (such as the Independent Earner Tax Credit and Working for Families); and

• Introducing a new FamilyBoost childcare tax credit.

To deliver on that tax relief, the National Party proposed to introduce a foreign buyer tax of 15% on residential property worth over NZ$2 million, and estimated this would raise revenue of NZ$740 million on average per year. However, the New Zealand First Party's staunch opposition to this proposal as part of coalition negotiations has seen the National Party put a halt to its foreign buyer tax. Instead, the ban on foreign buyers as implemented by the previous Labour Party government in 2018 shall remain in place – this prohibits international buyers from purchasing existing residential property in New Zealand.

To make up for this gap in revenue, the National Party has also decided not to remove the ‘app tax’ introduced by the Labour Party during its last term in government. Currently, under New Zealand's goods and services tax (GST) marketplace rules, operators of electronic marketplaces must collect GST at 15% where supplies of remote services or low-value imported goods are made through it, whether or not the person supplying the goods or services is otherwise liable to be registered for GST.

From April 1 2024, the app tax proposes to broaden the scope of services caught under the GST marketplace rules to include:

• Accommodation (other than already exempt accommodation);

• Ride-sharing and ride-hailing services; and

• Delivery services for food and drinks.

Consequently, users of apps such as Uber and Airbnb will likely see prices increase as a result of GST being charged on services where they previously fell outside the GST net.

Infrastructure is a key focus for the new coalition government, having already agreed on several infrastructure measures. A National Infrastructure Agency (NIA) is proposed to be established, which will expand the mandates and powers of Crown Infrastructure Partners (an existing government entity responsible for managing certain government infrastructure investments), centralising and coordinating the government's infrastructure funding across the executive bodies.

Notably, the NIA will create a gateway for not only domestic but also offshore institutional investors to play key roles in building New Zealand's infrastructure. Offshore investors will have opportunities to invest in long-term infrastructure assets. It remains to be seen whether tax laws, including those relating to limited partnerships, will be changed to more readily facilitate such investment.

A new NZ$1.2 billion Regional Infrastructure Fund was also agreed to as part of the coalition agreement between the National Party and the New Zealand First Party.

The government has already begun its 100-day plan, comprising of 49 actions, in its effort to stop the squeeze on the middle class. In the tax sphere, this will involve the introduction of legislation to remove the Auckland regional fuel tax and the complete repeal of the Clean Car Discount scheme (otherwise known as the ‘Ute tax’).

The National Party has had to make compromises regarding tax matters as part of forming the coalition government. As always, the new year promises to be an interesting one as the new government seeks to progress the economy in an environment of high living costs and inflation for New Zealand residents and internationally.