The jewel in New Zealand's tax crown
Peter Vial CA outlines why New Zealand’s Generic Tax Policy Process (GTPP) is the envy of tax practitioners in other jurisdictions.
- New Zealand’s GTPP is arguably the global benchmark for converting tax policy thinking into law.
- The New Zealand government’s continued commitment to the GTPP is critical.
- Chartered Accountants Australia and New Zealand (CA ANZ) is a passionate advocate for the GTPP.
Since the mid-1990s successive New Zealand governments have developed, enacted, implemented and reviewed tax policy according to a framework – the Generic Tax Policy Process (GTPP). This framework lies at the heart of New Zealand’s tax system and is critical to the system’s success.
Tax law and the tax system affect every Kiwi every day – our incomes are taxed; we pay GST; we receive benefits funded by taxes.The GTPP has ensured the tax legislation and tax administration system that underpin daily interaction between the community and the government are more cohesive, robust, fair and efficient than many equivalents around the world.
New Zealand’s GTPP is arguably the global benchmark for converting tax policy thinking into law. It is the envy of both policy officials and tax practitioners in other jurisdictions.
The GTPP is something to be proud of. It is something we in the New Zealand tax community should do our very best to protect. We want, and need, the GTPP to deliver tax law that works.
How did we end up with the GTPP?
New Zealand’s tax law was reformed radically in the late 1980s and early 1990s. In came GST (12 years head of Australia) and out went high marginal income tax rates. In came dividend imputation and out went a high company tax rate. In came fringe benefit tax and out went salaries in kind. In came rules for taxing outbound and inbound investment and out went paying tax offshore instead of in New Zealand (albeit on the international side this is still a work in progress).
The New Zealand government was able to turn the tax system on its head so quickly because it was in crisis mode – the country was nearly bankrupt in 1984 and the share market crashed in 1987. But also because there were few checks and balances on politicians (and policy makers) seeking to reform the law.
Inevitably, the huge volume and rapid pace of reform led to burnout – taxpayers and tax practitioners couldn’t keep up. The environment was ripe for change and the GTPP delivered that change in spades.
What exactly is the GTPP?
In Inland Revenue’s words, the GTPP was introduced to “ensure better, more effective tax policy development through early consideration of key policy elements and trade-offs of proposals, such as their revenue impact, compliance and administrative costs, and economic and social objectives”.
The GTPP is a multi-layered framework, but at its core are transparency, accountability and engagement with the community.
The GTPP ensures tax policy in New Zealand is not developed in a vacuum.
The GTPP ensures tax policy in New Zealand is not developed in a vacuum – that the policy formed by politicians and officials within the Wellington beltway is informed by, and right for, the wider community.
With GTPP there is little prospect of tax legislation “by press release”. There are few surprises and no wild changes in policy direction. Because of the GTPP, ad hoc, politically driven, short-term decisions about tax settings are rare.
Importantly though, the GTPP is not statutory and does not have the force of law. The government is free to diverge from, or suspend, the GTPP in respect of a specific policy or for a specific period.
Fortunately, bypassing or truncating the GTPP has been the exception. On the rare occasions when the GTPP has been suspended or short-circuited, the outcomes have not been good: law that doesn’t work and needs significant remedial amendment that may take years to achieve. In the interim taxpayers are left with uncertainty and frustration.
CA ANZ and the GTPP
CA ANZ is a key stakeholder in the New Zealand tax system and a passionate advocate for the GTPP.
CA ANZ’s New Zealand tax team and Tax Advisory Group (of members) see the GTPP in action (and, very occasionally, inaction). Indeed, we do more than see it. We participate at all stages by inputting at the early ideas stages; commenting on draft and final proposals; making submissions to Parliament on draft legislation; calling for reforms and responding to reviews of rules that have been enacted.
Our tax advocacy is always driven by the public good. We endeavour to provide comment on a “what is best for New Zealand” basis. We know that the government has to make judgments and trade-offs in setting tax policy, but CA ANZ believes that taxes should:
- be simple in their application
- provide certainty in their application
- be perceived as broadly fair
- minimise the costs of compliance and administration
- minimise distortions to the economic behaviour of individuals and businesses.
Continued commitment to the GTPP
CA ANZ’s guiding principles in formulating our advocacy positions are that New Zealand’s tax system must not impede New Zealand’s international competitiveness; growth of the New Zealand economy; or innovation and entrepreneurship.
One of the pillars of an effective and efficient tax system is taxpayer certainty, which increases voluntary compliance, decreases costs and delivers positive economic benefits. Tax legislation must be clear in its policy intent and application.
The New Zealand government’s continued commitment to the GTPP is critical in ensuring that the law is clear and fit for purpose. Just as critical for good tax law is CA ANZ’s continued engagement with the government and involvement with, and support for, the GTPP.
Peter Vial CA is the former NZ Tax Leader at Chartered Accountants ANZ and has recently stepped into the role of New Zealand Country Head. John Cuthbertson is the newly appointed NZ Tax Leader and he is a strong supporter of the GTPP as well.