New Zealanders may face a big tax debate in the coming years. Analysts say the key issue is whether the country is collecting enough tax, not just if a capital gains tax is needed. Currently, New Zealand has a fiscal deficit of about 2.4% of its economy, according to Treasury’s chief economic adviser, Dominick Stephens.
The Treasury’s 2021 report points out several challenges, including climate change costs, aging citizens, and rising healthcare expenses. If spending trends continue, the country’s debt could become unsustainable. As more people retire, fewer will be working and paying taxes.
Professor Robert MacColloch from the University of Auckland believes the economy’s weaknesses will make it hard to raise funds for health and education, leading to a tax discussion in the next election. The Labour Party may push for tax increases to support services, similar to the UK Labour Party, while the National Party may resist such changes.
Tax expert Terry Baucher warned that a 2.4% deficit equals around $10 billion. He argues that cutting government expenses may worsen the deficit, as seen in the UK after 2010. Rising costs for pensions, healthcare, and climate change mean New Zealand likely needs to raise taxes, estimating an increase of about 2% of GDP or $8 billion, which should be spread out over time.
Baucher notes that the current government may delay necessary tax increases. Wealthier older generations, who hold most of the wealth, may resist changes that raise their taxes. He believes New Zealand has not fully addressed the financial risks from climate change.
Other experts, like Dennis Wesselbaum from Otago University, agree that an aging population may require a higher tax take for healthcare and services. They suggest managing government efficiency or bringing in more younger migrants as potential solutions.
Ultimately, leaders may face tough choices: raise taxes, cut benefits for the elderly, or reduce government spending. There’s a growing demand for services but fewer people to pay for them, which complicates financial planning for the future.
