Tax and the Māori economy - KPMG | NZ
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Tax and the Māori economy

Tax and the Māori economy - still room for improvement.

Still room for improvement...

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Vina Hira - KPMG NZ - Partner

Partner - Tax

KPMG in New Zealand

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On 21 February 2019, the Tax Working Group (TWG) released their final recommendations to the Government. There were 99 recommendations to make the tax system, in the TWG’s view, fairer and more efficient. One received most of the attention.

The biggest talking point was the TWG majority’s recommendation for a broad based capital gains tax (CGT) covering everything from land to intangible property. The Prime Minister’s response was unequivocal – there will not be a CGT under any Government she leads – while the Opposition National Party was also not supportive of a CGT.
Due to the overwhelming focus on the CGT recommendation, other aspects of the TWG’s final report haven’t had much coverage (if any).

This includes the recommendations the Group had for the tax system (and tax policy development in general) to help support and grow the Māori Economy. Importantly, these recommendations are still on the table.
 

A framework for thinking about tax and its impact on the Māori Economy

The importance of the Māori Economy was embedded into the TWG’s work, with a proposed framework for developing tax policy, based on Wellbeing and Māori principles. The TWG refer to this framework as “He Ara Waiora”.

He Ara Waiora is based on four Tikanga principles which are recognised as being supportive in the development and preservation of the four capitals (economic, social, human and natural capital) which ultimately drive Wellbeing. The four Tikanga principles being;

  • Manaakitanga (care and respect); 
  • Kaitiakitanga (stewardship/guardianship);
  • Whanaungatanga (the relationships/connections between us); and
  • Ōhanga/Whairawa (prosperity).

The TWG also recognised the significant role that Māori Organisations play in developing New Zealand’s economy and their importance in furthering the wellbeing of Māori in particular. Consequently, the TWG intended the He Ara Waiora framework to serve as a useful tool for evaluating key policies aimed at creating a more sustainable future for Māori and non-Māori alike.  

TWG’s recommendations for the Māori Economy

Māori Organisations are an important part of both the Māori and wider NZ economy. Māori Organisations, following the receipt of treaty settlements, have focussed on wealth creation and the long term sustainability of their collective asset bases for the benefit of their wider Iwi and Hapū. To help achieves these economic goals, they are looking to adopt standard commercial operating models and mind-sets.

The Government has been supportive of Māori Organisations in their pursuit of these goals. The current Māori Authority Tax regime does not impede those objectives. The tax rate which applies to most Iwi (17.5%) applies to Māori Organisations rather than the corporate (28%) or trust (33%) tax rates. However, tax impediments remain depending on the commercial structure adopted. 

The TWG also acknowledged specific areas where the tax system particularly impacts Māori and the Māori Economy. These include:

  • the importance of Māori rights in the use of ecosystem resources in New Zealand (such as water rights), relevant when considering the development of instruments to tax ecological resources and assets; and 
  • the different way in which certain Māori assets are held (such as collectively-held land, which is relevant in the context of designing a potential CGT).

The TWG was largely receptive to submissions received on the issues affecting Māori Organisations and the practical considerations required when developing tax policy, which could impact Māori.

As a result the TWG made a number of recommendations impacting the Māori Economy and Māori Organisations, including: 

  • The current tax rate for Māori Authorities at 17.5% should be retained;
  • The 17.5% Māori Authorities tax rate should be extended to wholly-owned subsidiaries of Māori Authorities (along with some other technical refinements to the Māori Authority rules);
  • If a CGT is introduced, there should be “roll-over relief” from any CGT liabilities for certain transactions involving Māori collectively-owned land and assets; and
  • Development of environmental taxes need to consider the impact on Māori rights and interests.  

Government’s response – most recommendations not ruled in or out…

One example where no further consideration is required is the rollover relief recommendation, with the Government ruling out a CGT.

While the Government also ruled out taxing water rights in this Parliamentary term, any future consideration of instruments to tax the use or extraction of ecological resources should take into account the TWG’s comments. The inclusion of Māori interests when considering the taxation of ecological assets recognises the importance of ecological resources in Māori culture. By incorporating Māori values into any model that taxes ecological services, Māori will be able to have a say in how their interests in ecological assets are ultimately preserved through the tax system.

The Government has not endorsed extending the 17.5% tax rate to wholly-owned subsidiaries of Māori Authorities. This, along with other technical refinements to the Māori Authority rules, is to be considered for inclusion in the tax policy work programme but have not been rated as a priority.

KPMG supports extension of the Māori Authority tax rate to their wholly-owned subsidiaries. This will allow Māori Organisations to commercially separate their business risks from their culturally significant asset holdings. It would also allow the Māori Authority tax rate to apply, without complex business structuring, to give Iwi members the benefit of their individual tax rates (the policy rationale for these rules).

Given the importance the Government has placed on developing not only the Māori economy, but also the wider interests of Māori in the context of general wellbeing, it is disappointing these recommendations were not supported but will be considered further, subject to other priorities.

The Government’s response will defer change, missing an opportunity to further help ensure Iwi prosper. But its response also means change has not been ruled out. There is still an opportunity for Māori Organisations, in particular, to put forward their case for priority being given to these changes.
 

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