In the spotlight today
Hon Peter Dunne's Address to TINZ Conference – 2010-03-26 15:05:23.945
Shantytown, Greymouth
2pm, Friday 26 March 2010
Key points:
- "Whatever those changes might be … the driving considerations will be fairness, equity and decisions that will promote productivity and growth."
- "We want to reduce the impact of direct taxes on people through cuts to personal tax rates, and a greater emphasis on taxing the items we consume, to free up more capital for savings and investment, and in turn to help reduce indebtedness and boost productivity. In short, we want to position our tax system to capitalise from the coming world economic recovery, and to leave New Zealanders as well placed as possible to take advantage of future opportunities."
- "Over time, much of the way Inland Revenue goes about its business will be transformed – from improving processes, re-engineering systems and renewing IT infrastructures toward a fundamental change in the way the department and taxpayers interact. I will be introducing legislation in the next few months to begin this process."
- "A bill I introduced in November last year … proposes changes which will allow the transfer of retirement savings between certain Australian superannuation funds and New Zealand KiwiSaver funds….I expect this bill to be passed towards the middle of this year."
- "Also on the agenda is a subject of great personal interest to me, that of income splitting, a scheme which allows families with dependent children to split their incomes for tax purposes, thereby reducing their overall tax liability. Officials have analysed submissions on the consultation paper released late last year and are now working on detailed proposals that will form the basis of legislation I will introduce later this year under the confidence and supply agreement between my party, UnitedFuture, and the National Government."
Full text of speech:
I am very pleased to join you today for the opening of this conference, which focuses on something that has been a topic of much debate and discussion over the past year for all New Zealanders – the current state of the tax system and where to from here.
My personal view is that the overall structure of the New Zealand tax system is fundamentally sound.
But like all well-maintained structures, it could benefit from some fine-tuning to ensure it supports our economic goals of increased growth for the future.
Much of the public debate we have heard in recent months has focused on how we might achieve this.
On that count you will all be familiar with the work of the Victoria University Tax Working Group, which as part of its independent review of the tax system highlighted a number of areas it believes are in need of urgent reform.
You will also be aware that the Government is reviewing some of the Group’s recommendations with the view to announcing its final decisions in the Budget on May 20.
Whatever those changes might be – and there has been much public speculation over the likely detail – the driving considerations will be fairness, equity and decisions that will promote productivity and growth.
We want to reduce the impact of direct taxes on people through cuts to personal tax rates, and a greater emphasis on taxing the items we consume, to free up more capital for savings and investment, and in turn to help reduce indebtedness and boost productivity.
In short, we want to position our tax system to capitalise from the coming world economic recovery, and to leave New Zealanders as well placed as possible to take advantage of future opportunities.
At the same time, we want to eliminate the more obvious areas of potential abuse within the system, and those opportunities, especially relating to property investment, that are driven more by the likely tax advantages that may accrue, than the quality of the investment itself.
These are ambitious goals – but, as I say, the detailed announcements will have to wait till Budget Day.
But obviously the fine detail of any changes will be of critical importance to tax agents and their clients, so new tax obligations are well understood and complied with.
In this regard it is pleasing to see the results of Inland Revenue’s Customer Satisfaction and Perceptions survey for the September to December quarter show that the department and tax agents continue to demonstrate a strong respect for each other’s work.
As Minister of Revenue I have more than a passing interest in how the department measures up to public expectations.
While overall satisfaction across all business customers surpassed external reporting targets, ratings for tax agents increased significantly – with 83% saying they were “very satisfied”, a rise of 12 points over the previous quarter.
On the three most important things the community expects from Inland Revenue – trust, fairness and operational effectiveness, tax agents’ trust in Inland Revenue rose 4 points among those who “strongly agreed”, to 79%.
Under the fairness theme, the belief that Inland Revenue applies the law with certainty and consistency rose 15 points (to 58%) for those who “strongly agreed”.
In terms of operational effectiveness, 54% “strongly agreed” (up 1 point).
Finally, under the operational effectiveness theme, there was a 7 point increase to 46% of tax agents who “strongly agreed” that Inland Revenue’s systems, procedures and processes are effective and efficient.
Overall these results confirm there is a good working relationship between those who administer the tax system and those like yourselves who work with businesses and other taxpayers to ensure that your clients understand their obligations and that the system works efficiently for all parties.
The results also tell us that high on the list of importance for tax agents is the need for our tax system to be based on sound administrative foundations.
I whole-heartedly agree.
We cannot have a world-class tax system that collects revenue efficiently, and delivers fairness, equity and efficiency without a corresponding first-class tax administration.
Achieving that goal will require considerable modernising of Inland Revenue’s systems.
With that in mind, Inland Revenue has begun a major exercise that will see its administrative systems move away from the largely paper-based systems it has operated in the past.
These will be replaced by greater use of electronic technologies that better reflect the needs of today’s taxpayers for speed, accuracy and efficiency.
Over time, much of the way Inland Revenue goes about its business will be transformed – from improving processes, re-engineering systems and renewing IT infrastructures toward a fundamental change in the way the department and taxpayers interact.
I will be introducing legislation in the next few months to begin this process.
This follows on from a highly successful online consultation last year, which confirmed student loan borrowers’ preference for electronic management and communications over the cumbersome letter-based system currently in place.
The next step is looking at ways to improve the functioning of the PAYE and personal tax summary systems.
As you know, the employer monthly schedule is central to the PAYE process.
When it was introduced in 2000, the employer monthly schedule provided an efficient mechanism through which Inland Revenue was able to interact with employers in the collection of payments and information.
It also removed the need for employers to carry out an annual PAYE reconciliation and removed the need for most employees to complete an annual income tax return.
However, over the years, pressure on the system has mounted and it has now reached the limits of the amount of information it can contain.
The schedule has now become so complex that employers now make a lot of errors in completing it, requiring greater manual intervention from Inland Revenue to maintain its integrity.
Despite efforts to encourage employers to move from paper filing to electronic, only 28% of the 2.5 million schedules that Inland Revenue received in 2008–09 were sent electronically.
All this has led to the processing of employer monthly schedules becoming more expensive and less sustainable by the year.
Future tax and tax-related social policy changes will be seriously compromised if the employer monthly schedule has to accommodate more information.
Similarly, the personal tax summary system is also operating at capacity.
When first introduced, it was envisaged that only a small minority of individual taxpayers would need to request a personal tax summary.
However, with the addition over the years of numerous social policy programmes that interact with the tax system and the growth of personal tax summary intermediaries, that picture has changed.
Increasing numbers of individual taxpayers are requesting end-of-year square ups, requiring a greater number of interactions with Inland Revenue than originally envisaged.
There are two strategies that can be employed to deal with these problems of increased volumes and systems under pressure.
The first is to reduce the number of interactions that need to take place.
Better integration of tax requirements with ordinary business processes can play a part here.
The second strategy is to channel the contacts that do need to take place through electronic self-management.
Implementing these proposals will dramatically change for the better the way in which employers, businesses and individuals interact with Inland Revenue.
Improvements to electronic channels should provide better functionality to enable you as agents to better manage your clients’ tax affairs.
I expect detailed proposals to be available for full consultation with the tax community, businesses and individual taxpayers in the second half of this year, with legislation to follow later in the year.
As always, I look forward to your contribution to the consultation process.
In the meantime we will see a number of other tax policy developments move forward.
A bill I introduced in November last year and which is currently before Parliament proposes changes which will allow the transfer of retirement savings between certain Australian superannuation funds and New Zealand KiwiSaver funds.
It also contains some refinements to the KiwiSaver scheme, including a more coherent policy for savers under 18 to provide greater certainty for parents, guardians and young people on the rules for enrolling young people in the scheme.
I expect this bill to be passed towards the middle of this year.
Also on the agenda is a subject of great personal interest to me, that of income splitting, a scheme which allows families with dependent children to split their incomes for tax purposes, thereby reducing their overall tax liability.
Officials have analysed submissions on the consultation paper released late last year and are now working on detailed proposals that will form the basis of legislation I will introduce later this year under the confidence and supply agreement between my party, UnitedFuture, and the National Government.
Progress is also being made on issues identified in the Government discussion document GST: Accounting for land and other high-value assets, which was released for comment in November last year.
The main GST concerns identified in the paper were instances of certain schemes, known as “phoenix” fraud schemes, that involve Inland Revenue refunding GST with no corresponding output tax payments being made by suppliers.
In considering this concern, the discussion document proposed a domestic reverse charge for certain transactions, including land, which would require the recipient rather than the supplier to account for the GST on the supply.
It also proposed a number of changes to the GST Act that would improve the operation of the GST system in general – for example, in relation to the treatment of mortgagee sales and making adjustments for changes in use.
Officials are now working through the issues identified in submissions with a view to including any resulting changes in a tax bill later this year
Other tax policy projects in the pipeline for 2010 that will be of interest to you include an issues paper that will examine concerns with the dispute resolution and challenge procedures, and a review of the scope of gift duty, with the view of resolving current inconsistencies concerning exemptions.
Further priorities are also likely to emerge following the Budget in May, when the current tax policy work programme will be reviewed and decisions made on what projects should be carried forward.
Again, I look forward to your input to that process during the usual consultation phase.
That brings me to the end of this brief update of the Government’s tax policy agenda.
This conference provides a valuable opportunity for you to debate the issues and apply your collective knowledge of the tax industry to develop possible solutions in a very practical way.
I wish you well for the remainder of the conference and look forward to hearing the results of your deliberations.