National / ACT / NZ First Government - Tax Policies

Last week, the New Zealand National Party (“National”), ACT New Zealand (“ACT”) and New Zealand First (“NZF”) agreed the terms for a new coalition government.

These are the subject of separate agreements between National and ACT and National and NZF, which can be accessed here. 

The new Prime Minister is Christopher Luxon (National) with the role of Deputy Prime Minister split between Winston Peters (NZF), until 30 May 2025, and David Seymour (ACT), from 31 May 2025.

The new Minister of Finance is Nicola Willis (National), while Simon Watts (National) is the new Minister of Revenue

Going into the election each party had their own tax policy priorities (which you can reference here).

As the major party in the new Government, we have set out below how National’s election tax policies have been impacted following the coalition negotiations: 

National opposed the following measures enacted by the previous Labour Government and indicated they would be reversed or repealed.

• The application of GST to certain services (such as short-stay accommodation and transportation) provided through electronic marketplaces (the so-called “App Tax”), which is due to come into force from 1 April 2024.
• The Taxation Principles Reporting Act, which prescribes a set of principles against which the tax system must be measured and requires IRD to report on those measurements on an annual basis, starting in December 2023. 

The previous Government introduced but did not enact the following key tax measures.

• An increase in the trustee tax rate to 39%, to align with the top personal tax rate, from 1 April 2024 and implementation of the OECD’s Global Minimum Tax (“GloBE” rules or Pillar 2) to prevent multinational Base Erosion and Profit Shifting (“BEPS”). These changes were contained in the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill 2023.
• A legislative framework to implement a Digital Sevices Tax (“DST”) in New Zealand, at a future date, if agreement is not able to be reached at the OECD on a multilateral solution to the remaining multinational BEPS issues (called “Pillar 1”). This is contained in the Digital Services Tax Bill 2023.

We understand, based on previous statements, that National supports an increase to the trustee tax rate, albeit it is not clear whether this will be the same measure as proposed by the previous Government. (In particular, we note that submissions on the 39% trustee tax rate change noted the potential for widespread over-taxation of beneficiaries on rates lower than the top personal rate.)  

The position on the progress of the GloBE rules and DST is not clear, however, we note that National has previously supported BEPS measures.

The ACT and NZ First position on these measures is not clear. 

More than a month after the October 14 general election, we have some clarity as to the make-up, ministerial roles and policy priorities of the new Government.

A key plank of National’s campaign was its personal tax cut package, through raising tax thresholds and increases to Working for Families tax credits. From the coalition agreements, that policy seems to have survived largely unchanged.

What has not survived is a key revenue raising measure to offset some of the cost, a 15% foreign buyer tax on properties with a valuation of more than NZ$2 million. The foreign buyer tax was estimated by National to raise around $740m annually to fund its tax cut package, albeit questions were raised on both the scope of the foreign buyer tax (given NZ’s tax treaties) and its ability to collect the estimated tax. We understand this revenue shortfall is intended to be made up through other policy changes and fiscal buffers. The detail of these other policy changes is unclear, although based on comments by the new Prime Minister it appears that the so-called “App Tax” will survive to plug some of the revenue gap from not proceeding with the foreign buyer tax.

From the coalition agreements, it appears that changes to the personal income tax thresholds will apply from July, rather than 1 April, 2024. This will have some practical implications. 

• It is likely to require blended tax rates for the 2024/25 year to take account of the different thresholds that will apply during the first three months and remaining nine months. (That was the experience in 2010, when tax rates and thresholds were changed six months into the tax year.) This will create some additional compliance costs for employers and their payroll / HR teams to manage. 
• To give enough time and certainty for payroll software and systems to be updated, the amending legislation will need to be fast-tracked (potentially before the end of this year). This means the standard process for consultation on draft legislation is likely to be omitted altogether or highly truncated. 

For those tax policies not explicitly mentioned in the two coalition agreements (either to confirm their application or non-application), it will largely be a case of “wait and see”.

Some of these will also be time critical – such as moving the bright-line taxing period back to two years (from 10 currently) as this will impact decisions on when to transact. Therefore, clarity on the detail and exact timing, as soon as possible, will be important. 

This also extends to the status of the previous Government’s enacted tax measures and measures contained in the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill and Digital Services Tax Bill. What will be reinstated, amended or simply discarded remains to be seen. We expect the more routine “remedial matters” to be reinstated. 

While the new Government has an ambitious 100-day plan to implement a number of its key policies, including in the tax area, there will inevitably be complexity that will need time to work through.