PwC partner Geof Nightingale on Tax Working Group scenarios

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PwC partner Geof Nightingale on Tax Working Group scenarios

  1. 1. A TAX SYSTEM FOR NEW ZEALAND'S FUTURE 1 December 2009 Afternoon Session 2 Scenarios Geof Nightingale, Partner, PricewaterhouseCoopers New Zealand
  2. 2. <ul><li>Introduction to Scenarios </li></ul><ul><ul><li>Officials modelled scenarios requested by TWG </li></ul></ul><ul><ul><li>Discussed in session 5, 9 November 2009 </li></ul></ul><ul><ul><li>Represent combinations of options based on the ground covered in the working sessions </li></ul></ul><ul><ul><li>Results guide assessment of impact on 6 key principles </li></ul></ul><ul><ul><li>Limitations on available suitable data </li></ul></ul><ul><ul><li>Fiscal costs and equity impacts of income tax and GST more reliable than base broadening measures </li></ul></ul><ul><ul><li>Fiscal costings are for 2009/10 </li></ul></ul><ul><ul><li>Static costings, take no account of behavioural change </li></ul></ul><ul><ul><li>Fiscal drag reduction effect </li></ul></ul><ul><ul><li>Excludes “clawback” revenue increase </li></ul></ul>
  3. 3. Principles of an effective tax system Coherence Fiscal revenue Compliance & admin Fiscal integrity Efficiency & growth Equity
  4. 4. Scenarios modelled: Scenario Fiscal Cost ($m) Equity measures EMTRs Gini coeff. 80/20 ratio % with rise % with <10% fall % with >10% fall Status quo 0 0.34 2.84 - - - 1A – align at 30% 1,610 0.34 2.87 - 26% - 1B – align at 30% GST increase to 15% (with compensation) 1,410 0.34 2.83 <1% 99% - 1C – align at 30% semi-universalisation of WfF ($2000 p.a. per child) 2,250 0.35 2.89 - 24% 4%
  5. 5. Scenarios modelled: Scenario Fiscal Cost ($m) Equity measures EMTRs Gini coeff. 80/20 ratio % with rise % with <10% fall % with >10% fall Status quo 0 0.34 2.84 - - - 2A – align at 27% 3,090 0.35 2.89 - 15% 11% 2B – align at 27% GST increase to 15% (with compensation) 2,890 0.34 2.85 <1% 89% 11% 3A – align at 25% 4,060 0.35 2.91 - 15% 11% 3B – align at 25% GST increase to 15% (with compensation) 3,860 0.35 2.87 <1% 89% 11%
  6. 6. Scenarios modelled: Scenario Fiscal Cost ($m) Equity measures EMTRs Gini coeff. 80/20 ratio % with rise % with <10% fall % with >10% fall Status quo 0 0.34 2.84 - - - 4 – top personal and trust rates at 30% company rate to 25% 2,340 0.34 2.87 - 26% - 5 - top personal and trust rates to 30% company rate to 20%, remove imputation 3,210 0.34 2.87 - 26% -
  7. 7. <ul><li>Base broadening modelled </li></ul><ul><ul><li>Base broadening options modelled for each of the scenarios </li></ul></ul><ul><ul><li>Show how changes funded </li></ul></ul><ul><ul><li>Base broadening not just funding for gaps </li></ul></ul><ul><ul><li>Should be considered in any case to </li></ul></ul><ul><ul><ul><li>Improve efficiency </li></ul></ul></ul><ul><ul><ul><li>Improve equity </li></ul></ul></ul><ul><ul><ul><li>Improve sustainability </li></ul></ul></ul>
  8. 8. <ul><li>Scenarios </li></ul><ul><ul><li>Alignment v non-alignment </li></ul></ul><ul><ul><li>Picked two to discuss </li></ul></ul><ul><ul><li>Aligned at 27% to show quite significant change possible </li></ul></ul><ul><ul><li>Non-alignment 30%/20% to show what a deep company tax rate cut might look like </li></ul></ul><ul><ul><li>Not indicating a preference of TWG at this stage </li></ul></ul><ul><ul><li>Marginal changes v $57bn of tax revenue </li></ul></ul>
  9. 9. Status Quo TAX RATES
  10. 10. Status Quo – av. tax rate
  11. 11. <ul><li>Family examples are: </li></ul><ul><li>Two children under age of 13 </li></ul><ul><li>Two earner family – earnings split 67/33% </li></ul>Status Quo – EMTR’s
  12. 12. Status Quo – EMTR’s
  13. 13. Status Quo – distrib. of households
  14. 14. ‘ Property’ excludes owner-occupied housing ‘ Other’ includes other categories that would be liable to CGT Status Quo – asset holdings
  15. 15. Scenario 2B: 27% & 15% GST FISCAL COST <ul><li>Align top rates at 27% </li></ul><ul><li>Increase GST to 15% </li></ul><ul><li>Compensation for GST increase: </li></ul><ul><ul><li>Reduce bottom tax rates </li></ul></ul><ul><ul><li>NZS, benefits and WFF adj. for inflation impact (2.22%) </li></ul></ul>Personal: -$4,050m Trust: -$490m Company: -$500m GST: +$2,150m Net revenue change -$2,890m
  16. 16. 2B: Disposable income Change <ul><li>Family examples are: </li></ul><ul><li>Two children under age of 13 </li></ul><ul><li>Two earner family – earnings split 67/33% </li></ul>
  17. 17. 2B: Disposal Income Change *Total income and disposable incomes exclude WFF tax credits and capital income not currently taxed
  18. 18. 2B: Equality measures Change from status quo shown in parentheses; n/c = no change Numbers may not add due to rounding errors
  19. 19. 2B: EMTR impact
  20. 20. 2B: Capital Gains Tax +$3,880m Capital taxation excludes owner-occupied housing Assumes 4.2% nominal gain on property, 2.6% on financial assets and 5.4% on net business assets Revenue figures are for steady state after full implementation
  21. 21. 2B: RFRM on rental property +$700m Immediate impacts on households:
  22. 22. 2B: Land tax 0.5% +$2,130m
  23. 23. Scenario 2B – impact? Fiscal revenue Compliance & admin Fiscal integrity Efficiency & growth Equity Coherence Excluding Base Broadening
  24. 24. Scenario 5: Non-aligned, 30% & 20% <ul><li>Reduce top personal and trust rates to 30% </li></ul><ul><li>Reduce company rate to 20% </li></ul><ul><li>Remove imputation </li></ul>FISCAL COST Income tax 0-$14k 12.5% $14k-$48k 21% >$48k 30% Trust tax 30% Company tax 20% GST 12.5% Personal: -$1,370m Trust: -$240m Company: -$1,600 _________ Net revenue change -$3,210m
  25. 25. 5: Disposable income change <ul><li>Family examples are: </li></ul><ul><li>Two children under age of 13 </li></ul><ul><li>Two earner family – earnings split 67/33% </li></ul>
  26. 26. 5: Disposable income change Total income excludes WfF tax credits and capital income not currently taxed, disposable income excludes untaxed capital income
  27. 27. 5: Equality measures Change from status quo shown in parentheses; n/c = no change Numbers may not add due to rounding errors
  28. 28. 5: EMTR impact
  29. 29. 5: Base Broadening <ul><li>Net revenue change -$3,210 </li></ul><ul><li>Extension of capital income taxation: +$4,350m </li></ul><ul><li>RFRM on investment property: +$760 million </li></ul><ul><li>Land tax 0.5%: +$2,130 million </li></ul><ul><li>Deny building depreciation:+$1,300m </li></ul><ul><li>Remove depreciation loading: +$290m </li></ul><ul><li>60% thin cap threshold: +$180m </li></ul>
  30. 30. Scenario 5 – impact? Fiscal Compliance & admin Fiscal integrity Efficiency & growth Equity Coherence revenue Befor Base Broadening
  31. 31. <ul><li>Conclusions </li></ul><ul><ul><li>There is no silver bullet </li></ul></ul><ul><ul><li>All changes require trade-offs </li></ul></ul><ul><ul><li>Meaningful reform is possible without negative effects on equity or worsening child poverty ( even in a purely static analysis) </li></ul></ul><ul><ul><li>Behavioural changes in response could produce positive effects </li></ul></ul><ul><ul><li>High EMTR’s persist but can be improved </li></ul></ul><ul><ul><li>Base broadening measures not just funding but about sustainability </li></ul></ul><ul><ul><li>The changes need to be packaged, cherry picking could upset the inherent balance of trade-offs. </li></ul></ul>

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