NZICA: Depreciation will not tackle the tax problem

Removing depreciation allowances from property will not tackle the larger problem of under-taxation of capital assets.

New Zealand Institute of Chartered Accountants (NZICA) tax director Craig Macalister says if depreciation only applies to residential  rental properties it will be unfair as it needs to be a general rule for everybody.

"Rental property, forests, dairy farms and other farms have good increases in capital returns and they're not taxed the same as commercial property which needs to be addressed.

"Depreciation will not tackle the problem if it leaves that bias."

Macalister is also concerned about the reliance on direct taxes such as PAYE and income tax which are regarded as harmful to economic growth. He believes that burden needs to be shifted onto indirect taxation such as GST.

"To restore equity in the tax system, rates need to be lowered and flattened so people who earn a similar income are taxed at a similar amount. This needs to happen so people don't seek to avoid the top tax rate."

He says one of the problems at the moment is that a significantly small proportion of people are paying the bulk of income tax and that burden needs to be shifted to make it even.

"It means some people haven't been paying their share of the load and the changes re-weigh it, that's why the government is looking to re-compensate lower income people."

Prime Minister John Key told parliament on Tuesday that increasing GST to 15% was being "carefully considered" alongside measures to balance the GST increase and protection for low income families and pensioners.

Macalister questions if there is any point making changes if you're recycling the tax being picked up.

"It is not necessarily a popular voting exercise for the government to do what is right.

"It looks like a lolly scramble for everyone whereas the Tax Working Group was looking for a coherent system, fairly spread, with no prejudice."

Macalister points out that there was the McLeod review in 2001 and the Tax Working Group revived those issues.

"The issues are well known, the answers are clear, but successive governments are not prepared to tackle the issue because it's politically too difficult.

"Successive governments have tinkered with bits of the system to suit them but that introduced distortions - you can't do bits and pieces, you have to look at the system as a whole."

He admits that it is easy to throw stones and to come from a principled approach while the government is trying to tread a path down the political minefield to move the country forward.

However, he warns that what the government is not seeing and doing is what people should be worried about.

"There's been bias in the tax system for awhile now," Macalister says.

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