Capital gains tax the best way to raise revenue as NZ 's population ages - Treasury

A capital gains tax is the only tax base-broadening measure likely to raise a significant amount of revenue, Treasury has told the government.

Treasury and Inland Revenue have this year highlighted the potential need to rethink New Zealand's tax system.

An ageing population is expected to significantly reduce the number of working-age New Zealanders who are net taxpayers compared to the older, retired population.

That means the country may need to rely less on taxes on income and more on other taxes.

In response to an Official Information Act request, Treasury said it had provided the government with advice on a capital gains tax in a joint report with Inland Revenue in June.

It said: "If an existing tax base is narrow, then broadening the base is generally the optimal way to raise more revenue. However, besides taxing capital gains, base-broadening measures are likely to raise modest amounts of revenue."

Economist Shamubeel Eaqub said that was not surprising. He said New Zealand was already raising money through GST, corporate tax and income tax.

Corporate tax was hard to increase because it needed to remain internationally competitive.,

"Income taxes are already reasonably high in the sense that it gets batted around… what else do you tax? We could do other things like land taxes but they fall under that wider umbrella of capital. We somehow need to tax capital. That's the bit that's currently not in the system, that's what they are saying. It's not particularly controversial, every economist will tell you that."

He said it was not clear that more could be wrung out of the existing system.

Eaqub said while right now the population structure justified much of the burden falling on the working population, that would not remain the case.

"That's going to change in a sustained and enduring way."

He pointed to recent Treasury work that showed that people received more from tax and in-kind social services than they paid in tax when they were young and when they were past 65. But through their "primary working years" they paid more in taxes than they received in income support payments and social services.

"If we run out of net payers of taxes we'd better have a plan."

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