Wednesday 29th January 2014 3 Comments
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The growing worldwide digital economy is putting pressure on New Zealand's tax base, though online retail is a bigger threat than multinational avoidance, according to Finance Minister Bill English.
New Zealand is part of a multilateral effort to clamp down on income shifting by the likes of web-based giants Google and Facebook, who have garnered international attention for their complicated tax structures, English told Parliament's finance and expenditure committee.
A bigger threat to New Zealand's tax base is the increasing use of online retail spending, which avoids the country's 15 percent goods and services tax, he said. What made both issues murky was that traditional jurisdictions were muddied by the questions over geographical and digital boundaries.
"The most urgent issue is not the large end of town, it's the small end of town, it's hard-working mums and dads spending on the internet," English told the committee. "We have to resolve both of those issues."
Retailers have come under pressure from online sales, with apparel in particular struggling to compete, and have called for the tax department to be more stringent in collecting goods and services tax on New Zealanders' purchases from overseas websites.
The government raked in a smaller than expected tax take of $23.88 billion in the five months ended Nov. 30, due to lower corporate and GST tax revenue.
Treasury officials are picking accelerating tax revenue growth as an expanding labour market provides more income tax, and as rising wages encourage households to ramp up spending, fuelling the GST take, according to the half-year economic and fiscal update.
Speaking directly after the minister, Treasury chief economist Girol Karacoaglu told the committee New Zealand's economy was facing strong immediate growth, though that would temper to a more moderate pace in the coming years.
He warned against profligate government spending, which would put upwards pressure on interest rates that are already set to rise and an elevated currency.
"We might be a rock star, but we don't want to be a one-hit wonder," Karacoaglu said.
One of the measures the Treasury put forward to foster the country's tradable sector was in growing international connections across all policy areas, including education, infrastructure, immigration and overseas investment, he said.
"Everything we're looking at attempts to connect the New Zealand economy better with the rest of the world," Karacoaglu said.
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