A Comprehensive Financial Transactions Tax for New Zealand?: Implications of the Proposals for Reform

Abstract

In 1995 one of New Zealand's opposition parties announced, as part of its taxation policy platform, the introduction of a comprehensive financial transactions tax (FTT), to be levied on withdrawals from bank accounts. The motivation behind this policy proposal is both an attempt to address the perceived dominating influence of the financial markets on taxation policy in New Zealand as well as in most of the developed world, and provide an alternative to the Goods and Services Tax (GST). If the necessary shift in political ideology should occur, then the FTT would shift the burden of GST from consumers to financial institutions and businesses, who will be required to contribute over ninety percent of the then required $NZ7.7 billion to offset the lost GST revenue.

The final version of the FTT proposal, while only at the policy level rather than accompanied by detailed draft legislation, contains significant opportunities for avoidance, as well substantially increasing the already high level of complexity in New Zealand's tax system. After reviewing the FTT proposal in the context of other transaction taxes and the underlying philosophy of the proposed FTT, it is contrasted 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 in New Zealand and, to a lesser extent, internationally.

Note: This is a description of the paper and not the actual abstract.

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