Pre-election tax debate hinted at, as ANZ says country may escape with 'regular horrible recession'

Friday, 15 May 2020

Prime Minister Jacinda Ardern addresses media after Budget 2020 reveal.

A tax debate on how to pay for $62 billion of spending to offset the impact of the coronavirus pandemic is likely before the September election, Finance Minister Grant Robertson has hinted.

That is despite a forecast by ANZ chief economist Sharon Zollner that the country might get away with just a 'regular horrible recession' because of its success tackling Covid-19.

Robertson made almost no reference to tax policy when he unveiled the Budget on Thursday, saying only that the Government would 'see what happened after the next election'.

The Treasury forecast on Thursday that net core Crown debt would grow by $112 billion between June this year and June 2024, when it is expected to reach $201b.

Speaking at a post-Budget briefing hosted by ANZ on Friday, Robertson indicated that he expected a portion of that debt mountain to be whittled away naturally, through future economic growth.

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'We will pay that debt down over time,' he said.

Finance Minister Grant Robertson has signalled 'more tough decisions' ahead.

'That will be as a result of the economy growing, and growing sustainably.'

But Robertson also indicated the Government would have more to say on tax before September.

'In terms of things around the tax system, that is no doubt going to be a significant debate in the election campaign,' he said.

'There are some tough decisions to be made in the future around the New Zealand economy — just as there are tough decision to be made right now,' he also said.

There has been speculation the Government might overhaul income tax bands and rates to reduce taxes for people earning between $48,000 and perhaps $100,000, while bringing in a new top rate of tax for higher-earners, as well as potentially look at some form of wealth tax, such as an inheritance tax.

Robertson reiterated on Friday that Prime Minister Jacinda Ardern had ruled out a capital gains tax.

But there remains speculation it could still propose tightening rules around the taxation of investment income, without going as far as sanctioning a broad-based capital gains tax.

Deloitte tax partner Robyn Walker noted Robertson had confirmed there would be no changes in the current parliamentary term.

But she said long-term objectives set out in its fiscal strategy for a 'progressive tax and transfer system for individuals and families' and 'a system that treats all income and assets in a fair, balanced and efficient manner', might be 'a hint of what may be to come'.

'Whether this should be interpreted as a nod towards higher tax rates or new taxes, is something that may become more apparent as we head toward the election,' Walker said.

New Zealand has a shot at a 'regular horrible recession' and under the circumstances that's something to celebrate, says ANZ chief economist Sharon Zollner.

ANZ said in a research note that 'getting out the cheque book' was the easy part of the coronavirus response.

'Supply-side regulation, changes to tax settings, and reprioritising existing spending to ensure the taxpayer is getting maximum bang for its buck will be the real challenge.'

Former United Future leader Peter Dunne also forecast more taxes to fund deficits 'cannot be ruled out in the future'.

ANZ's Zollner said 'unlike like most of the world' New Zealand had 'a shot of just a regular horrible recession' because of the success of its lockdown.

'That is something to celebrate because in other countries it is not really clear what lockdowns are achieving.

'Are they saving lives, or deferring deaths, and if they come out of lockdown are they going to have to go back into it again?

'You can't imagine a worse environment for business confidence than that while I think there is a cautious optimism in New Zealand that maybe we know what we are dealing with now.'

That would be a relatively good outcome, she said.

Nevertheless, the coronavirus was not a bullet any economy could dodge, Zollner said.

In particular, ANZ was a bit less optimistic than the Treasury about how quickly unemployment would get back to current levels, she said.

'They think two years. We think maybe three or four is going to be more realistic.'