Implications of a Nz Proposal for a Financial Transactions Tax

Abstract

Should there be a significant change in political ideology, New Zealand may introduce a comprehensive financial transactions tax (FTT) levied on withdrawals from bank accounts both as an attempt to address the perceived dominating influence of the financial markets on taxation policy and an alternative to the Goods and Services Tax (GST). The FTT will shift the burden of GST from consumers to financial institutions and businesses, who will be required to contribute over ninety percent of the required $NZ7.7 billion to offset the lost GST revenue. The FTT proposal contains significant opportunities for avoidance, as well substantially increasing the complexity of New Zealand's tax system. After reviewing the FTT proposal and contrasting it with GST, the article concludes with the observation that if the necessary change in political ideology to introduce a FTT eventuates, it will introduce unprecedented alterations to financial and economic activity.

Keywords: Financial transactions tax, goods and services tax, tax policy

JEL Classification: K34