Tax review panel - right team for the job
Revenue5 October 2000Media Statement
Tax review panel - the right team for the job
"The quality of the Ministerial Review into the Tax System was always going to depend on the personnel and I am confident we have the right people for the job," revenue Minister Michael Cullen said today.
Robert McLeod, Managing Partner of Arthur Andersen (New Zealand) will chair the Review. The other four members are Srikanta Chatterjee, Professor of Economics at Massey University; Shirley Jones, Chair of the Council of Otago Polytechnic and an accountant specialising in small business; David Patterson, a Partner with the law firm Rudd Watts and Stone; and Ted Sieper, an Australian economist who has advised Governments on both sides of the Tasman.
Their backgrounds include tax accounting, law, economics and involvement with community organisations, providing the Review with a wide range of skills and experience.
"The tax system is a fundamental determinant of economic prosperity so it was vital that we got reviewers of the highest calibre. I am very pleased to have been able to assemble such a depth and breadth of experience on the panel," Dr Cullen said.
"I am certain that they will make a significant contribution in assisting us to ensure that the tax structure meets New Zealand's current and future needs."
The Review will be independent and has been given a comprehensive brief that allows it to consider all relevant options.
"One of my key objectives in establishing the Review is to create a forum in which the important tax policy issues facing New Zealand can be debated and discussed. The Review sends a challenge to all people with a stake in the tax system to think long and hard about what they want to tax or not tax.
"I hope people will rise to that challenge and we can see an informed and constructive debate.
"The Review is not intended to 're-invent the wheel', but to draw upon knowledge and expertise that already exists in New Zealand and elsewhere" said Dr Cullen.
He noted that the Review Team's budget had been increased from an earlier provisional estimate of $520,000 to $985,000 (including GST). The budget will allow for regular meetings of the Team, consultation with the public, and for the Team to commission external advice.
The Review Team is to report to Government by the end of September 2001. The Government will release the Team's report and will make public its response to the Review's recommendations.
"Significant new taxes will not be implemented without first seeking a mandate from the electorate through the 2002 general election," Dr Cullen said.
Further details about the Tax Review, including the terms of reference, are now available on the Review's website: www.taxreview2001.govt.nz.
Attachments:
Pen Portraits of the Review Members.
Review Terms of Reference.
Contact: Patricia Herbert 471-9412 or 025-270-9013
Tax Review Team
Robert McLeod
Robert McLeod is currently Managing Partner of Arthur Andersen (New Zealand), one of the "big five" international accounting firms, a member of the Council of the Institute of Chartered Accountants (ICANZ), a former chair of the ICANZ National Tax Committee, a Treaty of Waitangi Fisheries Commissioner and a member of the Business Roundtable. He was a member of the Valabh Tax Review Committee in the early 1990s and of Sir Ivor Richardson's 1994 Review of Inland Revenue. Of Ngati Porou descent, he is an advisor to a number of Maori organisations.
Srikanta Chatterjee
Srikanta Chatterjee is a Professor of Economics at Massey University. He has a doctorate from the London School of Economics and has taught in Australia, Fiji, India, Japan and Britain. His teaching and research interests include income distribution and inequality and international trade and finance. He has consultancy experience nationally and internationally in these issues and in economic reform.
Shirley Jones
Shirley Jones is a Partner in the accountancy firm S D & N S Jones. She has had a significant involvement with a large number of professional and community organisations. Mrs Jones is currently Chair of the Otago Polytechnic Council and a member of the Board of Presbyterian Support Otago. She is a former member of the Council of the Institute of Chartered Accountants (ICANZ), a former director of the Accident Compensation Corporation and Trust Bank Otago Limited and was the first chair of Workbridge Incorporated. She has also served as a member of the Working Party on Institutional Frameworks for the reform of Tertiary Education and the review working party of I.H.C (Inc.).
David Patterson
David Patterson is a Partner with the commercial law firm Rudd Watts and Stone. One of the leading tax lawyers in New Zealand, he specialises in advising on the structuring and taxation of commercial transactions. He was a member of the Tax Education Office from 1993 until its operations ceased in 1998. He was an attorney with Davis Polk and Wardwell, New York (1985 - 1989) and Paris (1990), and is a member of the New Zealand Law Society and of the International Fiscal Association.
Ted Sieper
Ted Sieper has lectured in economics at the Australian National University, Massey University and Rochester University (N.Y.). He has been an Associate Commissioner of the Australian Productivity Commission (previously the Industries Commission), an advisor to the Australian Treasury, an adviser to the Australian Campbell Committee on financial reform in the mid-1980s and, since the mid-1980s, has advised the New Zealand IRD and Treasury on taxation economics.
REVIEW TERMS OF REFERENCE
Functions
The Tax Review has been appointed to carry out a public review into the tax system so that the government has an appropriate framework within which to build tax policy.
The functions of the Review will be:
(i) to examine and inquire into the structure and effects of the present tax system in New Zealand;
(ii) to formulate proposals for improving that system, either by way of making changes to the present system, abolishing any existing form of tax, or introducing new forms of tax; and
(iii) to report to Parliament through the Minister of Finance, the Minister of Revenue and the Minister of Economic Development.
Context
The last 15 years have seen an overhaul of the New Zealand tax system. The main changes have been to remove special allowances and exemptions and varied tax rates. The result has been to broaden the tax base, flatten tax scales and greater resource allocative neutrality.
Critics say that the present tax system allows individuals to arrange their legal affairs so as to escape full rates of personal income tax, treats some types of production unevenly, and favours some forms of long-term saving over others.
A second concern is that the tax system as a whole has become less progressive, while at the same time the interface between the tax and benefit systems is generating very high effective marginal tax rates for some low income people and families.
Thirdly, threats to the tax base are found in new forms of transacting (such as internet trading and internet banking) and the use of new tax havens. A related problem is whether increased globalisation requires re-examination of the very possibility of New Zealand setting its own tax rates and what will happen if it does.
Finally, there is a growing debate about how relevant the tax system is to the core features of the economic structure. (Rival) contenders to augment or replace elements of the current tax structure are sector-specific taxes to be used as an instrument for sectoral assistance, cash flow taxation, financial transactions taxes, and eco-taxes.
There is both the need for and scope to review the tax system at the level of broad principle as well as in some detail. For this reason, it is proposed to divide this process into two stages. The Tax Review is the first stage of the process and will explore the broad principles of the tax system. Stage two will consider the detail of implementing any changes proposed in stage one.
Purpose
In the budget speech the Government announced:
We will set up a broad-based and wide ranging tax review to advise on the principles and structures best suited to sustaining a robust revenue base over the long term.
The review will concentrate on how it is possible to ensure a sustainable and continuous flow of revenue to meet Government requirements in the face of changing economic, social and technological conditions. It will form the basis of advice to the Government in broad terms about whether the New Zealand tax system can be improved.
Ideally the tax system should raise revenue simply, efficiently, fairly and reliably in an environment of changing technology, growing globalisation and increasing complexity. It should do this in ways that do not materially undermine the environment, social cohesion or the effective use of resources.
Task of the Tax Review
The Tax Review will:
(a) assess the extent to which the tax system can contribute to broader social and economic objectives such as encouraging secure, high-quality employment, generating a fair distribution of income, maintaining a sustainable environment and promoting higher savings;
(b) Recommend structural changes for the tax system, if appropriate. In doing so the Review will focus on the following questions:
(i)Can the tax system be made fairer in its role of redistributing income? This includes considering whether the income tax base should be broadened and the extent to which marginal rates should increase with levels of income, wealth and expenditure. The Review should consider the best mix between different tax bases such as income, consumption, financial transactions and wealth.
(ii)How can the tax system be designed to encourage desirable behaviour (e.g. work and savings) and discourage undesirable behaviour (e.g. the wasteful use of non-renewable resources)?
(iii)How can the level of tax that is reasonably required by government for the provision of essential social services such as health, education, superannuation and social welfare be achieved reliably in the medium and long-term bearing in mind the need for the tax system to be an effective instrument of fiscal policy in the management of the economy?
(iv)Do the tax system and tax rates need to be modified in light of new technology and international competition?
(c) The Tax Review will report on progress to the Minister of Finance, the Minister of Revenue and the Minister of Economic Development at regular intervals during the course of the review.
The conclusions need to be sufficiently general so that they can serve as a guide to overall tax policy, but sufficiently particular so that they provide a clear idea of the actual tax policies that they would lead to. The Review will submit its final report to the Minister Finance, the Minister of Revenue and the Minister of Economic Development by the end of September 2001.
Process Expectations
The process should be inclusive, with opportunity for the public and key stakeholders to provide input, perhaps by way of the Review commissioning studies, preparing and releasing issues papers and arranging various discussion fora.
Since tax policy is a well-developed field, the Review would gather and assess the views of stakeholders and previous studies, rather than devising principles and policies from scratch. The Review's reporting deadline (by the end of September 2001) reinforces this.
The Government would make available relevant tax-policy officials from Treasury and IRD to provide analytic and secretariat support, and would expect them to contribute significantly to the Review. The support will include a secretary to the Review, reporting to the Chair of the Review, to co-ordinate the support services to be provided. The Review team will have the ability and the budget to engage external parties to provide advice and assistance on specific issues.
Officials and the Review team would keep Ministers informed of the progress of the Review.
The Government will consider the report of the Review, and indicate publicly its views on what principles should guide tax policy and what the general structure of the tax system should be.
Stage two of the process will develop the conclusions reached during the tax review and construct a set of workable proposals that can be put before the New Zealand public in the context of the 2002 general election.
10 October 2000
TAX REVIEW PRESENTATION: QUESTIONS AND ANSWERS
What process will the Review follow?
The Review will follow a "top to bottom", two-stage process:
· Stage One will consider structural issues (rather than focusing on specific tax proposals); and
· Stage Two will help determine the policies of the parties in Government and other political parties. It is not likely to involve the same panel as Stage One.
Significant new taxes will not be implemented without taking them to the voters in 2002.
Who are the Review Members and how much will they get paid?
The members of the Tax Review and their fee levels (GST exclusive) are:
· Robert McLeod (Chairman), Managing Partner of Arthur Anderson, $1500 per day;
· Srikanta Chatterjee, Professor of Economics at Massey University, $1000 per day;
· Shirley Jones, tax practitioner with wide community experience, $1000 per day;
· David Patterson, a Partner with the law firm Rudd Watts and Stone, $1000 per day; and
· Ted Sieper, an Australian economist who has advised Governments on both sides of the Tasman, $1000 per day.
These are similar to the fees of $1,500 per day for the chairperson and $1,000 per day for other members of the electricity inquiry and fees of $1,200 per day for the chairperson and $900 per day for other members of the telecommunications inquiry.
Fees of this level were necessary for the Tax Review for the following reasons:
· given the importance of the tax system to the economy, the Tax Review's recommendations are likely to be significant for New Zealand and to have long-reaching economy-wide effects. It is therefore important that the Review members be equal to the task;
· the members of the Review possess valuable skills and the proposed fees are reasonable for people of this calibre; and
· the Tax Review will cover issues at least as complex and significant as the electricity and telecommunications inquiries. It therefore requires members of an equivalent calibre to these inquiries.
How much will the Review cost?
The Review Team's budget had been increased from an earlier provisional estimate of $520,000 to $985,000 (including GST). The budget will allow for regular meetings of the Team, consultation with the public, and for the Team to commission external advice.
How will the public know if the Review has been a success?
A successful Review will have done three things:
o Lead to a greater understanding within New Zealand of the key policy principles underlying the tax system;
o Lead to the development of enduring policy frameworks that can be the basis of tax policy for the future; and
o Prepared the ground for national welfare-enhancing reforms, whatever those reforms might be.
Why is this Review needed when there have been so many other reviews?
The Tax Review will examine if and how the tax structure meets (or can meet) New Zealand's current and future needs.
This Review differs from the many reviews conducted during the last two decades, as they were focused on the existing tax law and administration, rather than being architectural in nature.
The Principles of a good tax system have been known since at least 1776, when Adam Smith published the Wealth of Nations. Why spend public money on re-inventing the wheel?
There is indeed a large amount of existing material available on what constitutes a good tax system. Much of it is contradictory and was developed in another time and another place than 21st century New Zealand. The Review's task is to test this material and recommend criteria that are right for New Zealand now and in the future.
Developing criteria is, however, only one part of the first stage of the Review. The others are examining the current tax system against those criteria and recommending any changes required. Ministers would expect these two issues to take up most of the Review's time and efforts.
Will the Review recommend a Capital Gains Tax/Financial Transactions Tax/ Carbon Tax?
It is twelve months too early to comment on what the Review might or might not recommend.
The Review is tasked with looking at the whole tax system and it is almost certain that issues surrounding the appropriate tax base will be covered in its work.
Have particular issues been ring-fenced?
No.
Will the Review consider flat taxes?
The Review team is likely to consider changes to the progressivity of the personal tax scale. Obviously a flat tax is one example of an alternative tax scale. However, I would anticipate that the Review team would consider a range of options. They may, for example, consider a "Nordic" type approach, where personal taxes are steeply progressive and company taxes are low.
Is the Review being set up as a way of introducing a Capital Gains Tax/Financial Transactions Tax/ Carbon Tax?
No.
Ministers do not have any specific taxes that they want to Review to recommend. The Review has been set up for a purpose: to analysis the current tax system against criteria for the most appropriate tax system and to recommend any changes that might be needed.
Will the Review consider the IRD's work on the growth-maximising tax rate?
The Review will look at whatever information it needs to answer its terms of reference.
That said, the Review is about the best way to raise the revenue the Government needs, it is not about the appropriate size of Government, so ministers do not expect the Review to spend a lot of time of these sorts of issues. Put another way, the Review is on the tax system, not the government expenditure system.
Will the Review look at the impact of taxes on economic growth?
Almost certainly one thing the Review will look at in determining the best tax system for New Zealand is how to ensure that the Government raises the revenue it needs in the manner that results in the highest possible level of economic growth.
But maximising economic growth is not the sole criterion for designing tax systems, so Ministers expect that the Review will also look at the other criteria, like fairness and sustainability.
Will the Review look at the desirability of tax cuts?
The Review is about the best way to raise the revenue the Government needs, it is not about the appropriate size of Government, so ministers do not expect the Review to spend a lot of time of these sorts of issues.
One issue that the Terms of Reference do cover is the relative contributions that various current and potential new taxes make to the total tax take. It is possible, therefore, that the Review might be recommending greater or lesser reliance on one or another types of taxes.
Will the Review examine the way IRD operates?
This is a Review about tax policy, not about specific aspects of how the current tax systems is operated.
That said, administration is an important part of any tax system and so Ministers expect the Review to take account of administrative matters in framing their recommendations.
Why did it take so long to appoint the Review team?
The Government was determined to get value for money. The government would rather put together a high quality Review team than cut corners and time.
Did you get the Review team that you wanted?
The Review team members' backgrounds include tax accounting, law, economics and involvement with community organisations. This will provide the Tax Review with the wide range of skills its task requires.
Were the Review members quizzed on their attitude to specific taxes before being selected?
No. The members were selected on the basis of their knowledge of tax and commercial policy and practice, not because they have particular views on particular issues.
Don't the members all represent business interests? Who is looking after the interests of ordinary New Zealanders?
The members haven't been appointed as representatives of anyone or any group. For example, Mr McLeod is not "representing" the Institute of Chartered Accountants, even though he is a senior member of the Institute.
The members bring with them a wide range of perspectives. For example, one of the members, Shirley Jones, has wide experience at serving on community organisations.
The Government has set up an independent review, with terms of reference that require it to look at the best tax system for New Zealand as a whole. In that sense, the whole Review is looking after the interests of ordinary New Zealanders. And people will be able to have an input into the Review, through the open process the Review will follow.
Will the Review call for submissions?
The Review will determine its own procedures. But Ministers' expectations, which are made clear in the Terms of Reference, are that the Review should be as open and inclusive as time allows.
Calling for submissions will almost certainly be part of the Review's process.
Will the Review publish issues papers?
The Review will determine its own procedures. But Ministers' expectations, which are made clear in the Terms of Reference, are that the Review should be as open and inclusive as time allows. Issues papers may be part of the process that the Review adopts.
The Review will also have the budget to engage experts for advice and assistance on specific issues. The Review might make this work public during its process.
Will Treasury and IRD dominate the Review?
The Review is an independent review and the five members will make their own recommendations to the Government, based on all the information that they have available to them.
The Review has a budget available to engage experts for advice and assistance on specific issues.
Treasury and Inland Revenue tax policy advisers have considerable experience in this area and it makes sense for the Review to be able to tap into that experience. Therefore, Ministers will make officials from Treasury and Inland Revenue available to provide analytical and secretariat support to the Review and it is Ministers' expectations that officials will contribute significantly to the Review's work.
A Secretary, reporting to the Chair will also be appointed to co-ordinate the advice and assistance to be provided.
Ministers want an open and inclusive process, where a range of views about tax policy is brought to the table. No one will dominate the Review.
Isn't the Review a taxpayer-funded way for the Labour Party to develop its tax policy for the next election?
No. New Zealand governments have been paying for tax policy development for many decades and have engaged many consultative committees and reviews into tax matters over the years. The last similar review was in XYZ
The Review will be open and inclusive and will challenge all people and groups with an interest in tax policy to think clearly about what the tax system should look like in the future. This is for the benefit of everyone
Will the Government make a submission to the Review?
No.
The Government wants the Review to consider its terms of reference and make recommendations, rather than being a review of proposals by the Government.
Will individual political parties make submissions to the Review?
That is a matter for each party. There is nothing to stop them doing so. But any such submissions will not be given any special weight in the Review process.
What will happen if the Government parties disagree on the Review's recommendations?
The Coalition Agreement provides for this. Each party has the right to take a different position on matters important to it. Tax is no different.
Does this mean that the Labour Party and the Alliance might develop different detailed tax policy proposals at the same time?
Yes.
Why is there a two-stage process? Why doesn't the Government just have a single group work on the principles, the assessment of the tax system and developing policy proposals?
There are three reasons for a two-stage process.
First, the two stages require different skills and different processes. The first stage is about ideas and principles; and this is best done by a group of people with a wide range of skills and experiences working as an open and independent Review. The second stage is about developing detailed tax rules, where it is more appropriate for the Government to go about this directly, using the Generic Tax Policy Process.
Secondly, the world's libraries are full of reports from reviews that have made detailed recommendations that have not been implemented. A two-stage process reduces the risk of this: the Government will receive the recommendations of the first stage and only proceed with developing details of those aspects that are acceptable.
Thirdly, in an MMP Parliament, it is highly unlikely that all parties will agree with everything in the Stage One Report. It is possible, therefore, that different parties will want to adopt some of the recommendations and not others and may want to undertake their own development of detailed proposals based on those parts of the Report that they agree with.