Trump threat could put $493m hole in NZ accounts and complicate media help
Wednesday, 29 January 2025
President Donald Trump’s threat to retaliate against “discriminatory” taxes targeting US interests may scupper the Government’s attempt to collect hundreds of millions of dollars of tax from multinationals, tax experts say.
That could make a return to surplus in the Government’s accounts that has already been pushed out to beyond July 2029 even harder to achieve.
Ministers are also understood to be concerned Trump’s policies could complicate any attempt to implement the stalled Fair Digital News Bargaining Bill that it has backed as a way to help fund the media.
The Treasury assumed in its December Half Year Economic and Fiscal Update that the Government would rake in $479 million between January next year and June 2029 from a new Digital Services Tax.
The 3% tax on the New Zealand revenues of technology giants such as Google, Meta, Microsoft and Apple was proposed by the former government as a back-stop measure in case the OECD failed to negotiate a new regime to better share the spoils of multinationals’ profits.
The Treasury is also budgeting on receiving $14m by June 2029 as a result of an already-implemented law change that reflects an OECD agreement for a minimum 15% tax rate on multinationals’ profits.
However, Trump’s election threatens revenue streams from both the so-called ‘pillar one’ and ‘pillar two’ OECD multinational tax reforms, which were developed because of concerns technology multinationals in particular had found ways to unfairly minimise their tax bills.
Trump pulled out of the agreement for a minimum 15% tax on multinationals last week, saying it had “no force or effect” in the US.
He also signed an order paving the way for punitive measures against countries that targeted US companies and individuals with “discriminatory or extraterritorial taxes”.
The New Zealand bill that would introduce the Digital Services Tax has been languishing down the Government’s order paper setting out its legislative priorities since 2023 and is still awaiting its first reading.
Revenue Minister Simon Watts said the Government had decided to delay the introduction of the Digital Services Tax until January next year “at the earliest”.
It remained a backstop to a “multilateral solution” on multinational taxation, which continued to be New Zealand’s preferred solution, he said.
The new commencement date would let the Government observe “developments at the OECD and the international environment”, Watts said.
“The Government retains the flexibility to further delay the commencement date of the bill or to withdraw the bill altogether should sufficient progress be made at the OECD.
“Similarly, the Government would repeal the DST in favour of a multilateral solution once an acceptable solution becomes available.”
Ernst and Young tax law leader Dean Madsen expected New Zealand and any other countries looking at a digital services tax would be thinking “really long and hard about the potential spillover consequences”.
That was given “what the US has said and how quickly it has acted already in the short space of time against countries that it sees acting contrary to its interests”.
Trump had come out very strongly against the pillar two proposal for a global minimum tax and could be expected to be even more hostile to any efforts to more evenly share out tax revenue from US multinationals, he said.
Deloitte tax partner Robyn Walker said it would be interesting to see whether the Government made a decision to formally withdraw the bill.
KPMG tax partner Polina Belykh said the Government could decide instead to continue keeping a Digital Services Tax in its back pocket and “wait for other countries to take action and see what happens”.
New Zealand probably wouldn't want to risk the trade relationship by acting unilaterally, Belykh said.
The Trump administration’s threat to impose sanctions on Colombia for refusing to accept military flights repatriating illegal immigrants was “telling”, she said.
Finance Minister Nicola Willis told The Post it was up to the Treasury to make the call on whether it should be factoring the anticipated revenues from the Digital Services Tax into its fiscal forecasts.
“The judgment it made at the half-year update was that there was sufficient reason to believe that they should book that revenue and they'll have to assess that judgment again as we go into the Budget this year.
“Obviously, any Cabinet decisions will have a bearing on that,” she said.
It is understood that concerns Trump might retaliate against attempts to strong-arm the likes of Google and Meta into helping fund the media was a factor in progress on the Fair Digital News Bargaining Bill stalling last year.
That law change would require at least Google and Meta to enter into licensing deals for journalism that was shared through their platforms.
Documents released to The Post under the Official Information Act show the Government got as drafting amendments to the bill and sharing those with Google late last year.
The Australian government has put in place similar legislation and has now drafted a complementary law change that would effectively prevent technology giants from side-stepping that by instead purging news content from their platforms.
The additional law would tax the internet giants as much money as they could hope to avoid paying the media if they stopped linking to or sharing news.
The Australian Financial Review has speculated the Australian tax back-stop could invite retaliation from the Trump administration.
New Zealand’s Media and Communications Minister Paul Goldsmith has signalled he will spend a few months observing the fate of the Australian approach before deciding on his next move.