16 October 2023

Tax may not be the most thrilling topic for many, but it has been a central focus in this election.

In a political arena often characterized by its cautious and short-term approach to tax reform, both major parties, National and Labour, had unsurprisingly steered clear of substantial changes to the country’s tax framework. This included firm campaign positions regarding no wealth taxes or comprehensive capital gains taxation, at least in the medium term.

Instead, both National and Labour campaigned on tweaks around the edges of the tax system, using tax rate adjustments and a sprinkle of new taxes around the fringes to provide some relief against the sky-rocketing cost of living.

While the result on Saturday looked to be a big success for the National Party, it was not a landslide win (as there was for Labour in the 2020 election). This means we can expect some give and take around policy post-election, as coalition negotiations take place between Act and potentially New Zealand First.

Given the spread of tax policies between the parties, it could take some time to gain clarity on the exact outcomes for our tax system.

What does this all mean?

New Zealand’s tax landscape is always far from certain, and the outcome of coalition negotiations hold the key to the nation’s future tax policies, at least for the next 3 years.

Act has signaled that they will enter into coalition discussions with some very clear priorities and non-negotiables, and with a chance that New Zealand First may still join the fray, it seems like the rollercoaster ride is not yet over!

So far, the changes to our tax system that seem highly likely with a change of government include:

  1. Retention of the 39% trustee income rate, which will kick in from 1 April 2024, if the draft legislation is reintroduced in time;
  2. Changes to the current individual tax rates and tax credit regimes to account for inflationary pressure (bracket creep) and the increased cost of living;
  3. Removal of depreciation on commercial buildings, which was re-introduced post-pandemic;
  4. At a minimum, a reduction in the Brightline period back to two years by July next year;
  5. Phased reintroduction of mortgage interest tax deductions, with 100% deductibility restored from 1 April 2025 at the latest;
  6. An opening up of the high-end housing market to foreign buyers who are willing to pay a 15% tax on purchase value;
  7. Removal of Labour’s ‘AirBnB’ GST tax and a more measured approach to a Digital Services Tax implementation;
  8. Removal of the clean car rebate scheme (the ‘ute tax’) as early as December this year; and
  9. Removal of the Auckland Regional Fuel Tax and the extension of the Road User Charges scheme to EVs from April next year (and possibly to all vehicles at some point in the future).

What has National campaigned on around tax?

The last two terms under the Labour government resulted in a series of adjustments aimed squarely at taking some of the shine off residential property investment. The primary objective? To tackle the relentless surge in house prices that gripped the nation post-pandemic.

These changes came in the form of several targeted tax measures, including the introduction of tax loss ring-fencing, the expansion of the Brightline tax period from 2 to 5 and finally 10 years, and the phased denial of interest deductions on residential property mortgages. While house prices dropped, housing affordability (mortgage payments and rents) continued to rise. It’s impossible to attribute house price and affordability movement to any particular policy change, given the wider inflationary economic climate.

The incoming National/Act government has signaled its intentions to reverse many of these measures. They plan to restore full tax deductions for mortgage interest and dial back the Brightline tax period to its original 2-year span (originally introduced by National in 2015) before July next year.

National’s tax platform isn’t confined to property; it’s centred on an overhaul of income tax brackets to combat the issue of ‘bracket creep’. Over the past few years, rising wages have nudged many into higher tax brackets, resulting in an increased effective tax rate and a bigger tax haul for the government. The current top 39% will remain set in place, but the lower brackets are proposed to shift slightly up to give more people the benefit of lower marginal tax rates. To complement this, they’ve also expanded the tax credit framework, offering targeted relief to families on lower incomes.

National also campaigned on repealing the Auckland Regional fuel tax and the contentious ‘AirBnB GST Tax’ which is due to come into force next year unless it is scrapped.

To finance these tax breaks, National has drawn up an eclectic menu of new targeted measures. This includes opening up high-end properties to offshore buyers and introducing a foreign buyer’s tax, a tax on offshore online gambling platforms, and a shift towards a user-pays immigration levy system. In tandem with Act, National are also proposing sweeping cost reductions within the public sector and a reallocation of climate dividends via the Emissions Trading Scheme.

There is much for the new government to work through, particularly around the foreign buyer tax proposal and its integration with our International Fair Trade and Double Tax Agreements. We will have to wait and see what distortionary impact the firm $2m threshold for foreign buyers might have on the market.

Act had campaigned on a dramatic overhaul and reduction of the existing tax rates for individuals, with the top individual tax rate reducing to 28%, offset by large-scale cost and headcount reductions in the public sector. Such a change could have far-reaching implications for individuals, businesses, and the overall New Zealand fiscal landscape.

Should New Zealand First come into the mix in terms of a coalition, they are aligned with National around resolving tax ‘bracket creep’ due to high inflation, and the reinstatement of mortgage interest deductibility.

One of New Zealand First’s key pledges is to remove GST from basic fresh foods, provided they gain comfort that consumers would actually benefit from the change. We expect this will be a contentious issue in a coalition negotiation with National.

Talk to our experts

If you have any questions or would like additional information about how this change in Government affects you or your business, please contact a Nexia Advisor.

Our Auckland, Christchurch and Hawke’s Bay offices have specialist Tax Consulting services, and are ready to guide you and your business through these tax policy changes.

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