Developing a sustainable tax base through a financial transaction tax: An analysis of suitability for the New Zealand environment

Abstract

The purpose of this research is to address whether a Financial Transaction Tax (FTT) should be implemented in New Zealand in order to address the effect of an ageing population on the New Zealand tax revenue base. This paper considers the wider theoretical literature on the implementation of a FTT. In considering the literature it draws out the main arguments for and against the imposition of a FTT. This paper identifies that New Zealand has an imminent issue with needing to adapt the tax revenue base because of the impact of its ageing population. The advantages and disadvantages of a FTT are considered in the New Zealand context. The key advantages are that a FTT can generate increased revenue and reduce speculative behaviour in financial markets. The disadvantages identified in the literature are that there are limited means to accurately predict the actual revenue generated by a FTT, or the potential negative effects on market trading within a country. There is also concern that a FTT needs to be applied on a regional or wider global basis for a FTT to be effective. In the New Zealand context further research could include considering the amount of potential revenue that can be generated by a FTT, assessing the potential effect of a FTT on the government-funded superannuation saving scheme, KiwiSaver, and whether the imposition of a FTT would be more effective on a regional scale across Australia and New Zealand. This paper provides an initial explorative study of the potential for a FTT to be implemented in New Zealand and areas for future research.