PwC, EY query reliance on chasing tax dodgers

Thursday 24th May 2012

This year's Budget is surprisingly reliant on squeezing more tax revenue from an economy that may not grow as fast as the Treasury forecasts it will, say major accounting firms PwC and Ernst & Young in early reaction to the Budget.

"Budget 2012 is premised on New Zealander's stumping up with a lot more tax without any clear growth agenda," said Jo Doolan, a senior partner at E&Y, who has been a leading critic of the Inland Revenue Department's aggressive interpretation of existing tax law, which has redefined tax avoidance in recent years.

PWC's New Zealand chairman, John Shewan, said his firm was "surprised at the 29 percent increase in tax and GST forecast over the next four years."

"This is highly dependent on growth projections averaging 3 percent over this period," he said.

Doolan said the message for high income earners in the Budget was that the government will target them for tax avoidance and tax them harder than was already the case.

People earning over $70,000 a year were already paying 51 percent of all the income tax collected, and this was now forecast to rise to 54 percent in the year ahead.

"We are so over the excuses of the global financial crisis, the Canterbury earthquakes and the ongoing financial insecurity," she said. "These are realities we live with. The burning question is what sort of growth platform the Government is creating beyond a hope-and-see strategy."

However, both said the Budget's moves against tax loopholes were less significant than expected, with Doolan noting the IRD's information technology is unable to cope with major tax system changes in the foreseeable future.

"This is not necessarily good news," she said in a statement issued after the Budget was released. "It may mean Inland Revenue will continue with its heavy-handed approach of using the anti-avoidance rules to override any perceived or real use of the existing tax legislation to save tax."

BusinessDesk.co.nz

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