Objectives of the tax system
The Government will ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy. Taxation is an important tool for rebalancing the economy and setting New Zealand on a path to an economically and environmentally sustainable future. The Government believes that we need a better balance in our tax system to support our productive sector and ensure all taxpayers are paying their fair share.
The Treasury forecasts show that reversing the previous Government’s unfocused tax cuts creates $8.4 billion of fiscal headroom over five years – this is enough to pay for the operating commitments set out in the 100-Day Plan, including the Families Package. Further, the Government has established the Tax Working Group to investigate possible changes to make our tax system fairer and more balanced. This meets the PFA [Public Finance Act 1989] requirement to ensure efficiency and fairness in the tax system.
Further details on the Government’s specific short-term intentions and long-term objectives, as required by the PFA, can be found in the Annex.
Not a lot of additional details are provided in the Annex to the Fiscal Strategy Report. Short-term intentions and long-term objectives are said to include factors such as:
- having regard to efficiency and fairness, including the predictability and stability of tax rates
- taking into account the impact of fiscal policy on monetary policy, and
- prudently managing the fiscal risks facing Government.
The Fiscal Strategy Report also refers to the key assumptions upon which fiscal projections are modelled. These include that “the economy is assumed to grow at trend growth rates with no economic cycles in the projections”.
Whether that assumption is realistic or not could be expected to engender real controversy. An economic downturn or a recession might seem inevitable to some.
Another important assumption, perhaps just as controversial, is the assumption that the price of West Texas Intermediate oil prices will fall to USD 60 per barrel by mid-2018 “and remain stable thereafter” (Budget Economic and Fiscal Update 2018 at 7). In light of oil barrel prices already approaching USD 70, this seems rather optimistic.