Last week the Government signalled a range of economic reforms, including changes to tax policy (income, GST, and property), with details to be provided in the May Budget.
The economic agenda is wide-ranging, with the main pillars being: a more growthfriendly mix to the tax system; better regulation of resources; deepening and improving access to capital markets; a greater emphasis on practical skills in education; investment in key infrastructure; support for science and innovation; and better delivery of public services.
Of these areas, tax reform has understandably received the most attention. This is where there was the most uncertainty about which direction the Government would take, after several working groups made their recommendations last December; it’s also where there is the greatest potential to create winners and losers. The sharp drop in house sales in January (down 16% s.a.) suggests that buyers have become concerned about potential tax changes.
The most likely outcomes are a drop in the top income tax rate from 38% to 33%; an increase in GST from 12.5% to 15%, with compensating increases in government transfers; the removal of depreciation allowances (and subsequent clawbacks) for buildings; and the ring-fencing of losses on rental properties. New taxes aimed specifically at property were ruled out, though there may be greater enforcement of the existing capital gains tax for ‘active’ traders.
