Tax News

Latest tax updates on Cyclone Gabrielle and Treasury’s 2021 long-term insights briefing

6 Mar, 2023 | The Week in Tax

•  what more can be done for victims of the recent bad weather disasters
• thinking more broadly about the climate and demographic challenges ahead

The relief effort for the areas affected by Cyclone Gabrielle has picked up this past week. The government announcing a $50 million package for affected businesses, plus additional funding for the repairs of the roading network damaged by the cyclone.

Included in those reliefs is a temporary exemption from the Credit Contracts and Consumer Finance Act 2003 requirements, relaxing the requirements for banks to provide credit. This applies to the Gisborne, Hawke’s Bay and Tararua regions and enables banks and other lenders to quickly provide up to $10,000 in credit to affected businesses and individuals.

In terms of specific tax reliefs, as we mentioned last week, Inland Revenue has the ability to remit late payment penalties and also use of money interest for late payments on tax payments. The exemption for use of money interest runs through until 30th June. And then there is the Income Equalisation scheme we mentioned last week. That’s obviously going to be important for those eligible to use it, such as farmers and others with agricultural businesses on land. Just to reiterate, deposits for the March 2022 income year can now be made until 31st May, and withdrawals may also now be made on application.

Now, other things you can do if you want to help is making charitable donations to approved organisations. And there’s also the opportunity for businesses to gift trading stock as well and not be taxed for disposing of it below market value. This is something I think supermarkets, restaurants and farmers are already making use of this provision which was introduced as part of the COVID 19 response. It was due to expire on 31st March but an order has now been issued to extend it until 31st March 2024. Now that will be fairly useful in the short term.

Just to repeat a point I made last week, when you’re dealing with Inland Revenue, the best approach is to get in contact early and let them know what’s happening. Unfortunately, at the moment Inland Revenue’s offices in Napier and Gisborne are still closed. But if you’re in the affected areas, your best option is to call Inland Revenue on their dedicated helpline 0800 473566. Or you send a message via myIR using the key word “flood”.

That’s the main reliefs available although we don’t quite know how the $50 million business relief is to be distributed just yet but at least some help is on the way. What other things could be done from a tax perspective? I got some insights into that from a colleague, Stephen Diedericks, a tax agent in Hawke’s Bay. Based on the personal experiences of himself and other tax agents in the area he’s come back with some feedback on what’s going on and what could be done.

As he said, the issues they face are really numerous. First and foremost, positive cash flow is drying up. Then there are the seasonal farm workers who may have had jobs cancelled or they’re on the way here and have no accommodation to go to. I see there’s some changes to visa requirements underway which may be useful. There’s an enormous amount of damage to farm equipment and there are delays in obtaining new equipment. Even if you get a quick insurance pay out, getting replacement equipment may not be that easy. For example, Stephen mentions how one farmer placed an order this past week but will only receive delivery in 2024.

Then how do businesses support staff who’ve lost everything? Napier, as we know, was hit very hard. It so happened Cyclone Gabrielle coincided with Art Deco week, which is a big, big event for the region, and that’s not happening. As Stephen notes, volunteers have come and helped out and maybe some form of payment could be made to them? In his words, “rural farms are under water, crops are damaged. It could be more than one season for the land to recover.” And an unsurprising knock-on effect from that is food and vegetable prices for city-dwellers are likely to increase.

In terms of suggestions. Stephen and his colleagues believe there should be a six-month moratorium on all purchases and personal debt for those who have lost everything. He suggests providing easy access to KiwiSaver which is perhaps controversial, but can be done in cases of hardship. This would appear to be one of those situations, I would think. Basically, the point keeps being repeated. Cash injections to help businesses trying to get back on their feet and help the staff who may have had their homes destroyed or severely damaged.

A very important point also is some form of certainty with rent. Stephen’s view was that some form of rent holiday is required. The response by landlords in the wake of the pandemic was, shall we say, a little bit uneven. Some landlords, including my own, by the way, were willing to accommodate tenants who were affected, others less so. But I agree putting a rent moratorium in place would be very useful.

Then there’s the opportunity of reactivating the wage subsidy scheme. I know the Prime Minister has mentioned that this is a possibility. This is an off-the-shelf response we can embrace. My only caveat to using the wage subsidy is that, as we saw with the payments made during the COVID 19 response, some organisations took it who didn’t need it and then didn’t repay it. And then there were other organisations that took the payments but didn’t pass them on to employees. Personally, I favour getting payments directly to employees and as quickly as possible.

Anyway, notwithstanding the criticisms of the scheme, it was set up incredibly quickly paying promptly and was absolutely vital in that crunch period in March and April 2020. It’s there and it’s something we’ve done before, so we should be able to activate it again pretty easily.

Now in terms of specific tax responses, Stephen and his colleagues have a very good suggestion, which I totally endorse and that is to increase the low value asset limit. This is where this is the amount below which you can immediately depreciate the full cost of an item. Stephen and his colleagues suggest raising the threshold temporarily from its current $1,000 limit to $20,000. If you recall, back in 2020 it was increased to $5,000 for 12 months, and that was a welcome move. It helps businesses get replacement equipment, and that’s important at this stage.

Stephen is also supportive of the measures already taken by Inland Revenue about interest and penalty waivers. He suggested perhaps provisional tax payments could be suspended for the current tax year ending on 31st March and maybe also for the year to March 2024. But the key priority is to get cash in the hands of businesses immediately. “Just put it into the bank accounts. What’s needed is cash to pay bills.” And that’s the most important thing of all, is whatever is decided has to be done quickly. Everyone needs government assistance to happen as quickly as possible.

Other suggestions that might be made is obviously the wage subsidy. But I would think that the Government doesn’t want to use the wage subsidy, then the Small Business Cashflow Scheme, which was also hugely successful, is another mechanism still in place. It should be possible to open it up immediately to for affected businesses.

What I would suggest is that the amounts available are substantially increased. Under the scheme set up in 2020, there was a limit of an initial $10,000 plus up to $1,800 dollars per full time employee, up to a maximum of 50 full time employees. I think you need to more than double those limits because whereas COVID-19 was an event which interrupted businesses with Cyclone Gabrielle we’re talking about business interruption and physical destruction of property. Businesses affected will need more than $10,000 to get back on their feet as quickly as possible. I think, for example, you could lift the limits to say an initial $25,000 plus, say $4,500 per full time employee.

Another tax measure which we’ve used in the past is tax loss carry-back. If you remember, these rules were introduced temporarily in 2020, and allowed losses for the year ended 31st March 2021 to be carried back to the March 2020 year. There was some work done on making these a permanent part of the Income Tax Act, but work on that stopped I understand because of fiscal pressures.

Again, we’re facing something that needs immediate action and here’s something off the shelf we can use. All it would require is a Supplementary Order Paper to reintroduce the section for the current tax year and maybe the next year as well. I actually expect Inland Revenue is probably working on this at the moment.

Another possible mechanism that could be used again would be a variation on the Cost of Living payments. I know they were controversial because some payments went to the wrong people. But again, Inland Revenue ought to have the data to say, “Well, we know all these people live in the affected regions. So here’s $500 to every adult in that region.” An immediate cash drop to help.

And so, as I said, those are some of the options we can consider. And no doubt people will have some other ideas. And the key thing here is none of what I’ve mentioned is revolutionary or requires completely designing something from the ground up. They’re all mechanisms we’ve used previously and not so long ago and therefore should be able to reactivate. This is a major event, and we need to get relief to those affected as quickly as possible.

Thinking more broadly …

Now moving on, the debate has already begun about how to pay for this assistance and also further climate adaptation, which is now going to be required. It’s interesting to see a shift in thinking very rapidly on this stage. Now, in my view, this is a debate we should have been having for some time now. There are plenty of official reports which have alluded to the issue of the cost of dealing with climate adaptation and how to fund it.

And one I want to talk about for the rest of this podcast is Te Hirohanga Mokopuna in 2021, which is Treasury’s combined statement on the long-term fiscal position and long-term insights briefing. Treasury is required to produce these reports every four years. It was due in 2020 but got delayed to 2021 because of COVID. Obviously, when Te Hirohanga Mokopuna was released in September 2021, the effects of COVID 19 were high on the agenda.

But as the executive summary noted, “it is not only the COVID 19 pandemic that we must consider other economic and societal matters such as climate change and population ageing must also be factored into the long-term fiscal position of New Zealand.” These reports may take a very long-term view, looking at 40 years or more.

Treasury’s conclusion about COVID 19 response was quote.

“While the fiscal response to the COVID 19 pandemic has caused net debt to increase significantly, the Treasury views this response and current debt levels to be prudent. In any event, the Government’s fiscal response has helped prevent a deeper and longer lasting recession, which could have had long-term impacts on New Zealand’s wellbeing.”

After dealing with the immediate impact of COVID 19 the briefing then pivots to talk about climate change, which it  notes

“… will impact the fiscal position through both the physical impacts of a changing climate, such as more frequent and severe weather events, and the transition to a net zero emissions economy by 2050. Climate change has started to impact New Zealand today, but the long-run effect is highly uncertain at this stage. 

More frequent and severe extreme weather events and the gradual increase in temperature and sea levels will have economic and fiscal impacts in the future, which adaptation policy today could reduce.”

So, there you have it. In September 2021 Treasury pointed out the climate change scenario which we just encountered in the past three weeks firstly in Auckland with the Anniversary weekend floods and now with Cyclone Gabrielle was already happening. It’s here and we have to deal with it.

To be fair, it’s not just climate change the report is concerned about. It then discusses the impact of an ageing population, noting that 26% of the population is expected to be over 65 years old by 2060, compared with 16% by in 2020. Now what does that mean? Increased superannuation expenditure and rising health care costs. Treasury projects “the gap between expenditure and revenue will grow significantly as a result of demographic, demographic change and historical trends, in the absence of any offsetting action by governments.”

Treasury sees net debt increasing rapidly as a share of GDP by 2060. Its judgement is “there is currently no immediate need to reduce debt, but policy action will be necessary to reduce, achieve and maintain a sustainable debt trajectory over time. This will ensure that New Zealand is resilient to future shocks and future generations do not face an unduly large burden of debt.”

In my view we’ve arrived at the point where policy action is required right now. The Briefing then notes “Governments will need to decide how large an adjustment is necessary and at what time.” [My emphasis].  Now “adjustment”, and the word is used quite a bit in this report, is Treasury speak for tax increases and expenditure reductions.

The executive summary concludes.

“Changing tax rates or restricting expenditure growth can help close the growing gap between revenue and expenditure. However, analysis in this Statement shows that one policy change by itself is unlikely to stabilise debt over the long run. This means that future governments will likely need to draw on multiple levers and can consider trade-offs across different policy options in responding to our fiscal challenges.”

In other words, we’re going to need both tax increases and expenditure cuts.

This, by the way, was a point noted by the last Tax Working Group, which recommended a capital gains tax to help meet these pressures. The pressures identified in 2021 were much the same as those noted in Treasury’s 2016 briefing, which featured heavily in the thinking of the Tax Working Group about what changes to the tax system was needed.

Now, as we know, a capital gains tax was rejected in 2019, and we also know that the Government was not keen to see this relitigated in its long-term insights briefings from Inland Revenue. So what options does Treasury see as viable in its 2021 briefing? Well, we’ll examine those suggestions next week.

That’s all for now. I’m Terry Baucher and you can find this podcast on my website www.baucher.tax or wherever you get your podcasts.  Thank you for listening and please send me your feedback and tell your friends and clients.

Until next time kia pai te wiki, have a great week!

Tax predictions for 2023

7 Feb, 2023 | The Week in Tax

• Terry Baucher discusses three major trends that could have an impact on tax policy, along with his hopes for 2023

Welcome back. This week, we’re going to take a look ahead to what I expect will happen this year and also what I’d like to see happen in the tax world.

And let’s begin with the elephant in the room. It’s an election year and the politics of tax in an election year are always greatly magnified. We can therefore expect to see and hear quite a lot about the tax proposals of the main parties.

However, as some political commentators have already pointed out, this year’s election is likely to be tight, which means that the policies of the Act and Green parties may have more influence when the major parties get down to negotiating coalition agreements after the election.

I expect most of the public debate and announcements from the main parties will centre around providing relief to the squeezed low- and middle-income earners. This is the group that’s been most affected by the impact of fiscal drag over the past years as where the non-indexation of tax threshold has resulted in increasing the large number of people on relatively modest incomes being pulled into the 30% tax bracket.

This then has flow on effect for those who may be claiming Working for Families, tax credits and the impact of abatement, results in very high effective marginal tax rates for that group, sometimes close to 60%.

The respective policies that we’ll see between the left and the right blocs will come down to a choice between broad based tax cuts or tax relief, whichever phrase they wish to use, which will benefit greater numbers or more targeted policies aimed at the low- and middle- income earners I just mentioned.

Now, what the respective parties’ policies are will become clear in the run up to the election, but I would expect that we would see Labour’s proposals announced in the Budget, which should take place probably on either 18th or 25th May.

Now, given the demonstrated preference for targeted assistance as shown by last year’s Cost of Living payments, I would expect we might see changes to the Working for Families abatement regime and maybe also the Independent Earners Tax Credit. Certainly the group earning at the top of the 17.5% tax threshold at the moment will be the target there.

Now invariably lots of big numbers will be bandied around about tax that year and we’ll have claim and counterclaim. It’s my almost certainly vain hope that the politicians of whatever hue give a clear indication of how they propose to fund the coming fiscal challenges which we face around the impact of demographic change and the implications of that on the funding of New Zealand superannuation, health care and the fiscal impact of climate change.

Now, as previously mentioned, those were issues that were all addressed in Treasury’s combined statement on the long-term fiscal position and Long Term Insights briefing. It was released in September 2021, which seems like an age ago. But keep in mind that a key driver of the Tax Working Group’s proposal for a comprehensive capital gains tax was partly to address concerns identified by Treasury in the 2016 long term fiscal position about a growing funding shortfall.

The Tax Working Group noted that if nothing changed, according to Treasury forecasts, then the Government was going to be running large deficits starting as soon as 2030. Now, whatever opponents of capital gains tax may say, those fiscal concerns that were identified by Treasury in 2016 and again in 2021 remain and will need to be addressed in one form or another as far as we can see.

Neither of the main parties want to specifically address this critical issue. It’s the minor parties, the ACT party and the Green Party who have proposals in the tax space. They may be ideologically diametrically opposed. But the point is, they are looking at these issues and saying, hey, how are we going to pay for superannuation, health care, and climate change?

Last year it was the Nelson region that got battered by storms. So far, it’s been Tairawhiti East Coast, which has taken a tremendous pounding from Cyclone Hale and other weather events.

Amidst all the noise of what will be, I regret to say, a quite fractious debate this year, I hope everyone keeps their eyes on the main objectives that whatever we decide is the level of tax we’re raising, it is meeting the objectives we want of maintaining services such as health care, superannuation and also addressing road maintenance, infrastructure, housing, climate change, to name but a few.

It’s hard work corralling cats who are beholden to big business lobbyists

Moving on, the second trend will be no surprise at all for long time listeners of this podcast, and that is ongoing international tax reform, the so-called Pillar One and Pillar Two proposals.

Now, since the big breakthrough was announced in October 2021, Governments and tax agencies have been working through, with varying degrees of success, as to how those proposals will be implemented. They all looked to have stalled last year in the face of the European Union’s failure to agree unanimously on accepting the Pillar One and Pillar Two proposals. But fortunately, that obstacle was overcome late last year, so we expect to see further progress in this area.

Interestingly, the OECD has a new director of its Centre for Tax Policy Administration, Manal Corwin. She’s actually pretty well known in the international tax community, has held senior tax policy positions with two US administrations. In fact she was previously a delegate and then vice chair of the OECD Committee on Fiscal Affairs and was a delegate to the Global Forum on Tax and Transparency.

She’s got over 30 years of experience, so on the face of it, is exceptionally qualified for this particular area. I understand she takes up the role with effect from 1st of April.

Now, like the previous director, Pascal Saint-Amans, she’ll be very busy driving this change and basically trying to herd a lot of cats towards an agreement on international tax.

There’s quite a lively debate going on in this space at the moment around how well the new rules will play out, when and to what extent it will be implemented and what will be the implications.

And throughout the coming year, I hope to have some guests on the podcast to talk in more detail about these international tax developments.

Information sharing targets crypto

Now, for most taxpayers, these proposals, which are directed at corporate taxpayers, don’t really have a great degree of impact, except to the extent that you feel that multinationals should pay more tax, which of course is at the core of these reforms.

But many people are more affected by international tax cooperation. And surprisingly, this is an area which has seen remarkably little public commentary on the matter. This is the information sharing that goes on between the various tax agencies.

As we’ve explained previously, this is happening at a much greater extent than the general public realises and probably appreciates. And I expect to see initiatives such as the Common Reporting Standards and the Automatic Exchange of Information continue to be expanded. And we talked last year about the new proposed reporting free framework for crypto assets. And again, we’ll see that a push through into implementation probably later this year. So that’s a major step.

More audits coming

That major trend will continue, and it ties in to the third trend I see happening, which is Inland Revenue ramping up its investigation and audit activity. Now that Inland Revenue has got past dealing with COVID and cost of living payments, it probably will be focusing on what it sees at its core role, preserving and maintaining the tax system’s integrity. And part of that will be driven by the information it’s receiving through the various international information sharing agreements that I have mentioned previously.

Inland Revenue, for example, last year put out an informative booklet on offshore taxation, and it’s setting out where it expects to see greater compliance in this space. And only a couple of weeks back, it is now sending out letters to those three groups of people it’s identified who receive cost of living payments where their eligibility was unclear.

The three groups identified by Inland Revenue are those who had only negative PIE income and therefore should not have received a payment. Those are others whose eligibility is unclear because they might be overseas or were overseas at the time of receipt. And finally, the other group didn’t meet eligibility for other reasons.

Anyway, it’s interesting at this point, it’s sent out the letters directly to recipients, on the basis that the cost-of-living payments were not linked to tax agents. And normally, if you are linked to a tax agent, they will receive the correspondence.

So Inland Revenue have decided to go straight to the recipients. They’ve estimated there may be as many as 80,000 people involved here. And so right now, that group of people are working through with Inland Revenue as to whether they were eligible and if not, how are they going to repay? What are the consequences of that and options for repayment.

That’s just the first initiative we know we’ve seen in the launch this year. I expect we’ll see more and particularly in the area around the cash economy and invariably around the property sector, which has always been a reasonably fruitful area for Inland Revenue.

Seek relief early

At the same time, Inland Revenue will also be dealing with businesses and taxpayers coming under increasing strain as the economy slows down. And so, it will be interesting to see how it responds to requests for relief in that space. Just to repeat what we’ve said previously, if you do run into difficulties in the area, the best approach is to contact Inland Revenue as soon as possible to make arrangements about paying in instalments where possible. They are generally sympathetic where taxpayers take the initiative and come forward.

I suspect this time around they are going to be less sympathetic where taxpayers have started defaulting on payments, such as PAYE and GST. It’s always taken the view that these payments are held in trust by employers, businesses and should not be used for any other purpose. Many of the prosecutions we see Inland Revenue take involve non-payment of PAYE and GST. So, expect a harder line to emerge on that potentially. Again, watch this space and as always, we’ll keep you tuned with developments.

Looking ahead

Now, what would I hope to see going forward? I will keep it realistic. I know we constantly talk on this podcast about the need to address the taxation of capital. I think the current treatment is unsustainable in my view and is putting increasing strains on the tax system.

Things like the bright-line test and the interest limitation rules are by-products of not addressing that particular issue. But that’s not going to happen this year because for the politicians of the main parties it’s a topic they don’t really want to go near because they both see political downsides in doing so. So, I’ll focus on what things I think could happen realistically and what I’d like to see happen.

For example, I’d like to see some really good proposals coming forward to deal with a scenario I mentioned earlier about the taxation of low to middle income earners and these high effective marginal tax rates that trap them when they cross the threshold and the effective abatement on of benefits, whether it’s indexation of thresholds, or perhaps reshaping the thresholds as they haven’t been looked at properly since 2008.

I’d like to see something more than temporary targeted relief. This is an ongoing issue. It is a fault in the system and needs to be addressed otherwise we’re slapping a band aid on the matter and in another three to five years the same issues will re-emerge.

I personally have struggled for a long time to understand why New Zealand politicians seem to be very averse to the idea of automatically indexing tax thresholds. I think it’s because for a long time they’ve been able to proclaim changes to that as a tax cut and also, on the quiet, it gradually enables more revenue to be gathered through the impact of fiscal drag.

But automatic indexation happens in many tax systems around the world. The American tax system where the IRS is basically held together with bits of sticking plaster and string, can manage to index quite a substantial number of thresholds every year. Our system does index for ACC thresholds, and I don’t see why we can’t be doing that more in the income tax space.

There will also be plenty of talk this year, election year, about reducing the compliance burden, no doubt. And we’ll expect to hear that a lot from the ACT and National parties. And there’s no doubt that the compliance burden for small business is pretty high. And so, I’d like to see some thoughts put into making changes to make it easier for small and micro-businesses, those with five or fewer employers where they really do feel a strain. Personal declaration here – that’s a group I represent.

For example, one of the things I might think about is allowing for fixed deductions. Say that if you’re a self-employed contractor or something, there’s a standard amount of deductions claimable. You can claim these and you don’t have to worry about keeping records because in Inland Revenue’s experience, this is the sort of total expenditure that would happen generally. This would be something to help to simplify the tax system.

Changes to provisional tax would also help small businesses. Looking at the timing, for example. I mean, we just had a provisional tax payment on 16th January, which isn’t ideal timing, to be perfectly frank, and maybe we should rethink that date. Incidentally the changes resulting in the current timing of provisional tax payments were really made to suit larger taxpayers.

Now they might say, “Well, we pay most of the tax”. That’s true, but we have to follow your rules as small businesses and it doesn’t work for us, and there’s more of us than you.

Then, for example, there’s the financial arrangements regime which is horrendously complex and catches more people than it was ever envisaged to do when it was implemented in the mid-eighties. Some of the thresholds that apply in the financial arrangements regime have not been changed since 1999, so updates there would be helpful.

There’s also another quite irksome burden around paying non-resident withholding tax on mortgage interest paid to an offshore lender. And this often happens with for example, you’ve got a rental property overseas and you’re using the rental income from overseas to pay an offshore bank.

Under our present rules, technically you should be paying non-resident withholding tax or the Approved Issuer Levy on all such interest payments. Now, conceptually, you’re making payments to a non-resident, which is understandable, but it’s a lot of administration and practically the effect is minimal. But it’s one of those areas where I think Inland Revenue perhaps needs to have a think about whether it’s achieving what’s intended from the non-resident withholding tax rules.

And then I’ve mentioned earlier about fixed deductions. Maybe this should be a fixed allowance for home office space, again, making it easier for small business and employees. Overall, if you go into that space and you’re prepared to accept that there are swings and roundabouts and some people might push the margins, which is always what Inland Revenue worries about, there are definitely opportunities to reduce the compliance burden for small businesses here. I hope that politicians come forward with some realistic proposals in this area.

Well, to summarise, it’s going to be another busy year in tax and as always, we will keep you updated with developments throughout the year. That’s all for this week.

NOTE – this podcast was originally recorded on 19th January before I went overseas and was broadcast on 3rd February. Obviously, a LOT has happened since then.

e Tabacos de Filipinas v. Collector of Internal Revenue

Terry Baucher looks back on the big tax issues of 2022, a number of which will stay big issues in 2023.

19 Dec, 2022 | The Week in Tax

• Terry looks back on the big tax issues of 2022.

• After all, taxes are what we pay to get, maintain and keep a civilised society

A war, inflation, a proposed Tax Principles Act, dramatic U-turns and the Trusstastrophe. 2022 has been quite the year and I’m certain I’m not the only one whose predictions finished up wide of the mark.

Back in January, I saw three main themes for the year. Firstly, the ongoing response to COVID 19 and what new fiscal support will be offered. As part of this, the question of inequality and the taxation of capital would be on the agenda. Secondly, international tax reform and progress in the deal announced in October 2021. And finally, with Inland Revenue, how it was going to administer the tax system in the future.

Well, on the first there was a new COVID support package announced shortly afterwards in February, which ran through until May. However, although COVID is still very much around, the Government’s focus has rapidly shifted to dealing with a cost-of-living crisis in part, the result of COVID 19 and supply chain issues and the spike in oil prices after Russia invaded Ukraine.

By the way, as for financial support for COVID, only the Leave Support Payment Scheme, which pays $600 per week, remains available

Now, this is the year the details of the international tax deal announced in October 2021 were meant to be worked out, so everything would then be ready for implementation next year. Instead, it ran into a series of obstacles which has delayed this implementation until 2024 at least. Fortunately, however, this week a key obstacle has been removed, after first Hungary and then, following some last-minute shenanigans, Poland, dropped their objections to the deal. This enabled the EU to unanimously agree to implement Pillar two of the OECD proposals. This will impose the minimum corporate tax rate of 15%, which will apply to all national and domestic groups with combined annual turnover at least €750 million.

Overall, although progress is being made, it is at a slower pace than was expected back in 2021, and I would expect that will still continue to be the case next year. In fact reading the tax press, some are beginning to wonder if it will ever happen. But we will see.

Inland Revenue and the Cost of Living payments

After completing its Business Transformation programme, I expected Inland Revenue to turn its attention back to how the tax system is run. And certainly, at the start of the year there was a quite a bit of activity in this area with a particularly useful paper prepared by business New Zealand on the matter. However, the topic dropped off the radar in the wake of the cost-of-living crisis, which somewhat ironically then put the spotlight on how Inland Revenue operates.

In May’s Budget the Government announced a Cost of Living payment of $350 to be paid in three monthly instalments starting on 1st of August. To say there were a few teething issues would be one of the understatements of the year. Although mistakes were inevitable, given that were potentially over 2.1 million recipients, right from the outset, Inland Revenue seemed to be struggling to manage the delivery of the payments.

As has been reported, quite significant numbers of ineligible recipients and a large number of whom were outside New Zealand, had received payments incorrectly. And Inland Revenue also acknowledged there had been a systemic problem in respect of one group of 12,000 recipients.

Inland Revenue does now appear to have got on top of the issue of identifying the correct recipients of the payments. By the time the third payment was made on 1st October, the number of payments, compared with the first instalment in August had reduced by 96,000.

Inland Revenue now calculates that between 70 and 80,000 people may have incorrectly received a cost of payment and has now begun contacting this group about those payments.

Given payments were expected be made to 2.1 million people, some mistakes were inevitable. It is however, of concern that there were systemic issues identified. It’s arguably more problematic that Inland Revenue required by its own estimate, 750 staff, almost 20% of its current staff, to process those payments. This, combined with persistent rumours about now frequent overtime indicates potentially serious under-resourcing issues at Inland Revenue and that is something we will be keeping an eye on going forward.

The Cost of Living payment was one of the few surprises in May’s Budget. Grant Robertson chose again to do nothing about increasing thresholds, which, although tax rates were changed on 1st October 2010, the actual thresholds at which those tax rates apply, haven’t actually been adjusted since 1st October 2008. The theory behind the Cost of Living payments were that they were more targeted than raising the thresholds. But as we’ve just discussed, administrative errors by Inland Revenue meant that the payments attracted more controversy than anticipated.

Politics trumps tax policy, again

That said, the controversy around the Cost of Living payments paled beside the reaction to a proposal in the August tax bill to raise GST on management fees paid by KiwiSaver funds. On the face of it this was a routine tax measure designed to tidy up what was an unclear tax treatment and would not have taken effect until 1st April 2026. But it was expected to realise an estimated $225 million a year and then a political storm erupted once the accompanying Regulatory Impact Statement revealed that on the assumption the increase in GST would be fully passed on to KiwiSaver fund members, KiwiSaver balances would be reduced by an estimated $103 billion by 2070.

The Government rapidly decided to retreat, and the offending proposals were withdrawn inside 24 hours, which is a quite unprecedented move. It is one of the clear cases of politics trumping tax policy because once the dust has settled, the issue the matter was trying to resolve is still to be addressed. I suspect that whoever tries again might think about addressing criticism by using the funds raised to either restore the fee subsidy of $40, which was withdrawn in 2009, or adopting one of the Tax Working Group’s proposals for minimising the effect of tax on KiwiSaver funds of low-income earners.

The Trusstastrophe

That controversy and U-turn was, quite frankly, nothing compared with what might politely be described as the Trusstastrophe (I’ve seen ruder descriptions) which happened barely a month later in the UK. To recap new Prime Minister Liz Truss and her Chancellor of the Exchequer, (finance minister) Kwasi Kwarteng decided to go for broke with a bold tax cutting mini-Budget in September. This proposed significant tax cuts, primarily the reversal of a proposed corporation tax increase and the removal of the 45% tax rate on the income tax rate. This provoked a massive run on the Pound and more worryingly in the gilt markets, the UK Government’s bond market.

Within four weeks, no fewer than seven of the tax cutting proposals were gone and shortly afterwards so too were Kwarteng and Truss to become footnotes in history. Truss becoming the shortest serving prime minister in British history. (Remarkably, Kwarteng is only the second shortest Chancellorship in history, after Iain Macleod who died in office after just 30 days).

What Kwarteng proposed

What eventually transpired

But if that was all great fun to watch from this side of the world, Truss and Kwarteng’s dramatic fall actually had a knock-on effect here. Arguably the most controversial proposal was the withdrawal of the highest 45% income tax rate band, it highlighted how a disproportionate amount of the proposed tax cuts would have gone to relatively few people. In the wake of the fallout, National here felt compelled to announce it wouldn’t go ahead with its proposed abolition of the 39% tax rate in its first term if it forms the Government after next year’s election.

There was also something else amidst the mayhem which didn’t attract a lot of attention. There were no attempts at all by Truss and Kwarteng to reduce capital gains tax or inheritance tax. In fact, Kwarteng’s successor as Chancellor Jeremy Hunt, has actually increased the tax on capital gains by reducing the annual tax-free allowance from its current £12,300 steadily to £3,000. This is an interesting insight into the relative states of the tax systems in the UK and here. The UK system even when being managed by bold tax cutters left alone the taxation of capital. Whereas as we know here, the taxation of capital is a perennial problem.

A Tax Principles Act?

It was in part to this issue that David Parker, the Minister of Revenue made a very interesting speech in April in which he proposed a Tax Principles Act across by which the system could be judged, regardless of the Government in charge. It’s well worth reading again the proposals, but we have not seen anything regarding the proposed bill which at the time he suggested would be coming out this year.  Given how the Government reacted to the GST on management fees issue, I think it’s probably likely we won’t see this at all until next year, if Labour is re-elected and forms the next Government.

A constant theme of this podcast is around taxation of capital, because there’s a lot going on in the world in this space. As we just mentioned, the UK despite bold tax cuts, wasn’t prepared to make changes to the taxation of capital. Over in Ireland, the Irish Government asked a Commission on Taxation and Welfare to report on the Irish tax and welfare systems.   Its final report published in September, made 116 recommendations, one of which was that the overall yield from wealth and capital taxes, including property, land, capital acquisitions and capital gains taxes should increase materially as a proportion of overall tax revenues.

And this is one of the areas we think New Zealand is out of sync with global trends.  But the politics are very difficult. It’s easy to say what’s needed as a tax consultant, but politicians want to be re-elected and they have to deal with the political fallout. But whenever I do address this topic, it always provokes a lively discussion.

Top Five most read transcripts

It’s interesting to look at what are the most read transcripts and most listened posts and try and pick a common theme. They’re actually surprisingly different. By far the most read transcript for the year was when I discussed an interpretation statement on the application of land sale rules to co-ownership changes and changes of trustees. Interestingly, this was one of the top five most listened podcasts.

The Budget special was the second most read transcript for the year. At number three was when I discussed extended reporting requirements for trusts. (In that episode I also warned about the risks of mis-understanding the UK’s remittance basis rules after then Chancellor, and now Prime Minister Rishi Sunak became embroiled in a scandal).  

The consistent theme emerging is about the taxation of property/wealth and that’s the case for the fourth and fifth most read transcripts. The fourth-place transcript covered a Reserve Bank of New Zealand’s Analytical Note on the housing market in an international context. The RBNZ note compared our housing market with several other developed  markets and suggested that favourable tax settings have not helped the housing crisis.

In the fifth-place transcript I looked at the question of wealth and windfall taxes. Certainly, the comment section gets pretty lively whenever I make a suggestion that maybe we do need to change tax settings around the taxation of capital, such as introducing the fair economic return that Associate Professor Susan St John and I have been talking about for some time.

Top podcast tracks

With podcast listeners the top five is slightly different. The most listened to podcast for the year involved the proposed income insurance scheme, which has slipped under the radar although it’s still progressing in the background. Housing and countering tax avoidance was also in the top five podcast tracks for the year but only the episode covering the changes in ownership appeared in both top five lists.

Time for a more open discussion on tax?

As I said, whenever we deal with the taxation of housing, that pushes a few buttons which is sometimes amusing to see, but inevitable. But debates about what we tax aren’t going to go away. We’re going to see them more so next year being an election year. I do think we need to be asking a lot more about why we’re raising the tax – this point frequently comes up in the comments to a transcript.

This is important because one of the things that is emerging is the longer-term trends for the tax-take relative to the demands and pressures on it, such as rising superannuation costs. Those aren’t being very publicly discussed, but they’re very clearly being pointed out in Treasury’s report on Wellbeing and particularly in He Tirohanga Mokopuna 2021, its combined Statement on the Long-Term Fiscal Position and Long-Term Insights Briefing. But the Government doesn’t really want to talk about capital gains taxes at all. When Inland Revenue was preparing its Long-Term Insights Briefing it was specifically told not to consider the impact of capital gains tax.

I think politicians have deliberately, if understandably proscribed debate on the matter. But the fact is those debates aren’t going to go away. Tax systems evolve over time and these issues are going to need to be discussed because ultimately if “taxes are what we pay for a civilised society”^[1], they also meet the demands of the economy and society at that time. If tax doesn’t change or adapt to meet those needs we have future problems brewing.

And on that note, that’s all for this week and for 2022.  I’m Terry Baucher and you can find this podcast on my website www.baucher.tax or wherever you get your podcasts.  Thank you to all my listeners and readers and for all the feedback I greatly appreciate it even if we don’t always agree. 

Until next year kia pai te Kirihimete, have a great Christmas!

Vivien Lei introduces her award winning tax reform idea

12 Dec, 2022 | The Week in Tax

• Vivien Lei introduces her award winning tax reform idea to introduce weighting factors into environmental tax loads, ensuring the full costs are brought into business decisions and nudging behaviour away from polluting outcomes

This week, I’m joined by Vivien Lei, this year’s winner of the Tax Policy Charity Scholarship. Vivien, and other entrants were invited to propose significant reforms to our current tax system or analyse potential weaknesses and unintended consequences from existing laws and propose changes to address them.

Topics for consideration were environmental taxation, tax administration or the powers granted to the Commissioner of Inland Revenue to collect information for tax policy purposes. Vivien won with her proposal to change Aotearoa-New Zealand’s environmental practises with impacts weighted taxation.

Kia ora Vivien, congratulations and welcome to the podcast. How do you feel after all that?

Vivien Lei
Kia ora and thank you for inviting me, Terry. It’s great to be here.

Yes, the competition was an amazing experience. You know, we don’t normally have many opportunities to really think about kinds of policy and different things that we could achieve in the future. So, this was a great opportunity for someone young to kind of test the waters, think creatively. And yes, it’s been great to have the support of everyone so far.

Vivien (centre) with the other finalists and members of the Tax Policy Charity judging panel and Deborah Russell MP Parliamentary Under-Secretary for Revenue

Terry Baucher
How did you land on this idea of weighted impact? What was the genesis of the idea behind that?

VL
The competition had three themes and I was immediately drawn to the environment one. I think a lot about the world that we will be leaving for our future generations, because realistically our current trajectory is not sustainable.

I think my non-tax experience has been a key inspiration. Before I started in tax, I was an entrepreneur. I spent six years building and growing early-stage start-ups and social enterprises from scratch, and I assisted with some researchers at the University of Auckland as well, looking at social enterprise ecosystems and impact measurement.

And the other part of my background is I’m also currently Finance Leader of the charitable Fisher Paykel Healthcare Foundation. So, I’m really privileged to have insight into the impact that the board and my foundation lead, interact with, and fund.

Through all of this, I’ve learnt so much from people and the social impact and not for profit sectors, and this experience really underscored for me how important it is to measure impact. So, you can check that you’re having the intended effects and articulate how what you’re doing links to the outcomes you’re aiming to achieve.

And I think others are realising this too. That’s why we’re seeing all these environmental reporting and evolving accounting standards. And I had in my mind that there’s an opportunity here for tax to proactively adapt alongside them and not fall behind.

But if we want to do something about our environment, you really need bold actions and innovation. And I think New Zealand prides itself on innovation and there are some amazing minds out there who could help us tackle this massive issue. My thinking has never been about a sin tax. It’s all about how we can make sure the full costs of people’s activities are clear and then incentivise a significant change in behaviours and norms towards positive environmental outcomes. So that’s kind of how my thinking landed on the impact weighting.

TB
It’s fantastic and fascinating to hear about your background before you got into tax, unlike some poor sad nerd like me who went from university into a tax career. But to me, as we both know, tax has an interesting behavioural impact on that. Your paper points out we have the sixth highest emissions per person in the world and there’s just a little detail about negative environmental impacts like the Rena grounding. It cost the government $46 million, but we only ever got $27 million back from the ship owners and insurers.

So looking at it with an impact approach is a very neat way of doing so. I particularly like the point you picked up that if we can’t buy enough emissions offsets because everyone’s going to be doing that as well. It does come down to some hard decisions about how we measure it, manage it and reduce it is how I’d put it.

In here you said the approach you’ve taken is there are certain businesses that have a negative environmental impact, and they will obviously want to take steps to reduce that negative impact. And the way you phrase it, they get a credit, as I understand it, a credit for doing something positive. Negative impacts are obviously emissions. What would be some examples of positive impacts?

VL
How it functions is organisations continue to be taxed at their standard tax rate, but then they’ll have a permanent adjustment in their statement of taxable income. And that net adjustment will take into account both the negative and the positive impact. What I suggest in my proposal is that we focus on three environmental impact domains, because there are a lot of different types of impacts.

And some of them it’s quite difficult for an individual actor I guess, to measure what their own impact is. So, what I suggested was air, for example, that’s kind of where the emissions is. But there would be other negative impacts now, other domains such as around freshwater, marine and land as well. So that’s kind of a negative impact side.

To answer your question on the positive impact. The way my framework sees it is there are broadly three types of activities that would be seen as having a positive impact, and those are namely prevention, reduction and removal activities. The names are probably quite self-explanatory, but you have activities that avoid negative impacts in the first place.

For example, if you just use EVs for your company fleet, then you have avoided having that kind of negative impact. You’ve got ones that reduce environmental impacts, having processes that are more carbon efficient, for example, and then removal as well.

For example, planting trees, or directly capturing emissions and storing them in geological reservoirs. So these are the three types of activities that I see would be seen as valid effectively for having a positive environmental impact.

TB
That’s fantastic. And so, as you said, EVs are a classic example. You have an electric fleet, therefore no emissions, but equally switching away to more efficient ones. You went from ordinary car fleet to hybrids. You’ve also got a positive impact there. Further down the chain, you have some pretty old clunkers you’ve been running around on, and you replace them with newer ones. So they’re even more efficient. So again, each one of those has a positive impact. They’re all a slightly different way, one’s a gold-plated option. The other one’s less gold plated, but quite a realistic option.

Car fleets are getting more and more efficient. Something I know the UK and Ireland do is that they measure FBT on emissions. So obviously, electric fleet, no emissions. If you have a more efficient fleet, fewer emissions, lower FBT. It’s fascinating.

In your proposal, you pick up existing ideas about how to measure impact such as the Australasian Environmental Product Declarations. Would you explain a little bit more about how those work.

VL
Yes. From my experience, both on the academic side, but also when I was running my own ventures, measuring your impact is really not straightforward. It’s an evolving kind of industry at the moment. I would say there’s no universally agreed methodology, but I think this might change because we are seeing  the accounting standards start to develop in that area. From my point of view,  I don’t want to reinvent the wheel. There are multiple recognised impact measurement methodologies and as long as you’re taking some sort of reasonable approach to measuring impact, I think that’s valid.

In my proposal, one of the frameworks I referenced was the environmental product declaration, and that’s quite good. That’s basically a third party that comes and verifies the lifecycle environmental impact of a product. And there are other kinds of frameworks as well.

So many large corporates will do their own sustainability disclosures. Some of them will have carbon accounting, for example, and then have those disclosures audited by a specific kind of carbon audit firm. And there are other voluntary standards as well. One that we talk about here at my current role at Fisher Paykel Healthcare is the GRI, which is a voluntary kind of global standard. But again, all these show that lots of organisations are thinking about “how do I report to my stakeholders the amount of my emissions or the amount of landfill waste we divert?” these are the kind of frameworks and existing measurements that impact weighted taxation, which leverage effectively.

TB
Working through an example, you’ve got your statement of taxable income. So, you start with your profit or loss before tax, and you would make your standard tax adjustments? Then you make the impact weighted adjustment which is basically an add-back or a deduction and it’s a permanent difference, isn’t it? There’s no timing around this. I think that’s a strength, actually, because if there was a timing difference, you’d see manipulation straightaway.

VL
Yes, and it gets complicated quite fast. Yes, just one off. I see it as permanently increasing for most people, their tax payable, eventually in the long term, as people do more and more positive impacts activities. Then it might turn into a deduction effectively.

TB
You’ve prepared an example in here. We’ve got a profit before tax, $500 million, add back permanent differences which would be entertainment $53 million, the GST on entertainment –  people often forget that by the way, there’s a whole other podcast I could also do on that.  Non-deductible legal fees and then the IWT, the impact weighted Income or credit, which in this case is $102 million.

And then you have the temporary timing differences of $400 million. The net taxable income is $255 million, which the tax on that at 28%, is $72 million. And the difference is effectively without the impact weighted taxation, the taxable income would have been $153 million.

So the impact here for this particular company is an extra $102 million of income at 28%, which today is just over $28 million. Which is, I’d say, a very positive incentive for them to take steps.

A quick question in terms of what happens with the revenue that’s raised there. How do you see that being deployed? As hypothecated or just into the general pool? Over time it would hopefully sink to nothing.

VL
I think that’s right. I didn’t have a firm view on this, to be honest. I see potential either way and I think it’s probably more flexible for the government for it to go into a general pool, because there’s opportunities here. You could either, for example, take it to environmental R&D kind of initiatives, or you could take it to the cleanup kind of budget as well.

I don’t really have a view on this. I think for me, we have a relatively low environmental tax take in New Zealand. And as you mentioned before, these negative environmental impacts are effectively being subsidised by us. The Government is paying for it. We need to reprice these activities effectively and this increased tax take just reflects effectively the cost of the activity that these organisations are undertaking. And how that money then gets distributed  just depends on what the appetite is really. But long term you’re right, it should go down and part of that will probably involve quite a bit of investment and  innovation to do more positive impact activities. We probably don’t even know what they look like right now but could make a significant difference in the future.

TB
Yes, I totally agree. Your paper, by the way, has some nice little anecdotes. I mentioned the one about the Rena, but here you’re talking about American Airlines, for example. That if it actually had to account for its environmental costs, they would be US$4.8 billion. And airlines are notoriously non-profitable anyway, so that would be the end of that.

And the other thing is emissions prices in New Zealand for our transport emissions would need to be nearly three times the current price to meet our agreements. So what you’re saying is that new taxes are never popular, but we’re not actually pricing the costs of what we do anyway and we should do. Once you do that, it’s interesting to see what incentives come out of that. Am I paraphrasing that correctly?

VL
Yes, that’s absolutely right. And I think part of it is the environmental costs are clear to see at the moment as well. It’s very difficult and that’s why this measurement piece is so key. But I think if an organisation isn’t fully paying those environmental costs, they’re not realising the full cost of their activities.

There’s less of a disincentive for them to stop doing activities with the negative impact. And there’s flow on effects as well. All the stakeholders of the organisation like customers, for example, aren’t getting a clear picture either of what the cost of, let’s say this product is.

So, I think that’s really the thinking around this. “Let’s have a clear picture of what the cost of that activity is.” And you’re right, this does add an incentive to think is there something I could be doing differently to have a positive impact, rather than continuously having negative environmental externalities?

TB
We’re starting to see that. What was it last week – the American court wanting to suspend the import of fish caught from the Maui catchment area. It’s something of a concern I have, because although we are much more than an agricultural economy, food exports are tied to our green image. And so, courts taking action like that is potentially quite alarming for food producers and others.

Obviously you’d want to try and mitigate that possibility. And as you say, the current approach of certain industries buying emission offsets just isn’t driving enough change. I think what you’re saying here, to repeat a point, is that you’re building on existing ideas. This is nothing particularly new. As you said, there is already environmental impact standards. So, it wouldn’t be one that every company could come up with.

I imagine for example, as part of the reporting, you’d tell Inland Revenue, these are the environmental impact standards we have adopted, and so long as Inland Revenue say, well, those are approved, that’s fine. That would be how it would work, I imagine?

VL
Yes, absolutely. I think it’s all about not adding more compliance if possible. So, if there are already methods where organisations are measuring impact or reporting on it within their financial statements then those should be used. So there are various New Zealand organisations doing integrated reporting and we hear a bit about impact weighted accounting.  

Last year as well New Zealand became the first country to require certain financial organisations to make climate related disclosures and I think we’ll see the first of those in 2024. I think off the back of all these we are seeing people doing this reporting anyway. And that’s about how can we link the tax payable to that reporting so that organisations are not just merely disclosing what’s happening but actually have some skin in the game to proactively take action about the impact they’re having so far and how to improve it.

I think using existing standards helps with that, and in the future,  we saw in New Zealand for example, that the financial organisations have a set standard now and I think probably over the next few years we will see those standards expand for other organisations and industries. And as they do that, there is an opportunity here for tax to really adapt alongside them and not just wait for the full standards to be implemented before we think about how does tax fit in with this? I think as the accounting standards go on this journey of understanding what this will look like, so too should tax.

TB
 Yes, tax change is quite interesting. Take the shape of the New Zealand tax system. The other day I looked at 1949 to see what’s in our tax take then.  There was even an “Amusement tax”, for example. And then compare that with our system now, and you can see how it evolves over time which is what should be happening. Tax can in some ways lead that change we desire.

So, I’m looking at this proposal and thinking, “Oh my God, I’m a small one-man business. How is this is going to apply to me?” But you’re saying initially it would be larger organisations to begin with. What would be the break point, the cutoff point, so to speak? And would that be a sinking lid, as more and more people came into it as the system bedded in.

VL
Yes. I think the initial scope for implementation is voluntary at the start, especially until accounting standards mandate disclosures. That will give people time to work through how this regime would work. And yes, I see large organisations first, consistent with an IFRS accounting definition. https://www.xrb.govt.nz/standards/accounting-standards/

And the reason for that was large organisations are probably some of the biggest contributors to the environmental impacts just due to their scale and size. They’re most likely to be doing some sort of voluntary measurement or reporting already and their actions will have a significant positive impact because of their scale and size. So that’s why I picked large organisations first.

I do think that we have to balance the complexity of measuring environmental impact versus the likely costs that the government would have to subsidise without impact weighted taxation. So, for a smaller organisation, I guess there could be a lot of complexity, especially in these early stages when we’re all trying to figure out how this works. That’s quite difficult.

I do think though, that the impact measurement capability will improve and become more commonplace long term. It would be appropriate to widen the scope in the future. And there is a lot of support out there for all kinds of small and medium sized organisations as well.

I know Sustainable Business Network has been coming out with toolkits aimed at SMEs to help them with impact measurement and reporting. So, as we evolve this and see how the first kind of adopters respond to this regime, and in many years to come, we will be ready for small and medium sized organisations to participate in Impact Weighted Taxation.

And for some of them this could be a huge opportunity as they are realising that customers are interested, and prefer positive environmental impacts, and that could be quite helpful to their business from a customer point of view. And if it also helps their business from a tax point of view, that’s very nice as well that there’s synergies there. I think that might be what it will look like long term.

TB
I would say that for some they might find we’ve got a competitive advantage here because we are a low carbon emitter, we’re just a low carbon industry or business, and we’ll jump in on this. By the way what is the definition of “large”?

VL
The amounts were updated earlier this year. It’s either total assets in excess of $66 million or turnover exceeding $33 million.

TB
So similar to the company’s office reporting standards. That’s still a reasonably sized proportion of businesses in New Zealand. Several thousand businesses could be within that.

VL
Absolutely. Much like implementing other tax regimes, you’d first trial it with a few of them. For example, for the R&D tax credit regime Fisher Paykel Healthcare was one of the first to trial that. So that’s probably the key in the initial implementation, voluntary, choosing a select group if needed before you have all large organisations participate. For these kinds of things, it’s key to try it out and see how the details work. I’ve just started some of the thinking here, but I’m sure there will be many other things to work through as well because these kinds of regimes are not simple.

TB
But they are necessary, the key point you make is we move to a circular economy. You estimate moving to a circular economy within Auckland alone would be worth $8 billion by 2030, which isn’t that far off.  These decades roll round very quickly. This is coming towards us much more quickly. Steps and initiatives like this are what we need. We’ve got to try everything.

VL
That’s right. The circular economy is probably a concept we’ve talked about quite a lot recently because everyone’s realising, we need to change our practises hugely. And the way we’re going to do that is to design all the waste out.

We’ve got to make sure everything can be reused, recycled, reprocessed for as long as they can be before they reach the end of their life. Technology can really help us with this as well in terms of figuring out what happens to all these materials. There is an opportunity here for tax to incentivise that as well, so that we effectively accelerate our actions towards that.

TB
There’s no doubt, as we both know, tax has a very interesting behavioural impact on people. And as I said, I think for smaller businesses that may have opportunities where they could essentially be in credit, they will take it up, and other businesses that realise we have a problem here will take action appropriately.

And to borrow a phrase I’ve heard about the All Blacks, sometimes we think we need a big bang. We need to just find something that captures emissions and that’s the end of it. But actually, a lot of 1% adjustments will get us there. And I definitely think your proposal is one of those 1% adjustments.

VL
Absolutely. It’s about incentivising all the small actions, every little bit counts. That just reflects the reality that every little thing we’re doing will help the environment and that is ultimately going to benefit our economy.

You reference the clean, green image that we so value here at Aotearoa. And a lot of our industries, agriculture, fisheries, these are all very closely linked to our environment. So being able to incentivise things towards us, this is going to help our long-term economy as well.

TB
Well, that seems a great point to leave it there. Thank you so much Vivien, for coming on. And congratulations again on what is a fascinating paper, I’m looking forward to seeing more of this and dealing with it myself.

That’s all for this week. I’m Terry Baucher and you can find this podcast on my website www.baucher.tax  or wherever you get your podcasts. Thank you for listening and please send me your feedback and tell your friends and clients. Until next time ka pai te wiki – have a great week.