Tax. It’s a word that often instills emotion. Particularly if you are speaking to a small business owner.

There are two distinct camps here in New Zealand. Well three if you include those that just don’t give a damn about anything.

The first is that New Zealand is technically a low taxed country. This camp argues that by OECD standards, New Zealand tax rates are relatively low, especially compared to “socialist” countries such as Spain.

The other camp basically says based on our overall economic situation, New Zealand is highly taxed and our tax system is overcomplex.

So, lets take this a little deeper. It has been acknowledged that tax debt is increasing rapidly. In fact, officials have now acknowledged that Inland Revenue can not keep up. They are at breaking point, and only cases that meet certain criteria are now being dealt with.

This highlights the second camps primary opinion of New Zealand’s tax system. It is too complex. It is simply costing too much for businesses and the Inland Revenue to remain compliant. Essentially “dead money”. The government has several options here. Considering the prediction is an $8 billion tax debt by 2014, the government really does need to do something.

Camp one, who feel New Zealand is relatively balanced as far as taxation are leaning towards more punitive penalties to force people to be more compliant. Anecdotal evidence shows New Zealand already has one of the most punitive taxation compliance systems in the OECD, disproportionate to the actual “non-compliance” crime. And it must be taken into account that in New Zealand, the buck stops with the taxpayer, even if they pay professionals to look after their tax position. Inland Revenue do not care that your tax lawyer or accountant made a mistake, you as the taxpayer, are culpable for any errors. Not exactly endearing to “voluntary compliance”.

Now, we have the other camp, which I freely admit I am biased towards.

The second camp, largely made up of front line business people rather than bureaucrats or academics, are adamant that a simpler, flatter and less punitive regime will not only increase the overall tax take, but reduce government spending in the area of both tax management and treasury duties.

Their argument basically says treat tax as a flat cost, equal for all entities regardless of income, and make “expenses” counted against income black and white rather than the gray mish-mash it currently is.

So which is right? Flatter, simpler taxation that would be easier for IRD to manage/monitor or a more punitive system that punishes those who break the rules?

As a nation, the next five years are pretty critical. Will the current government have the balls to actually make a decision about the New Zealand taxation system? Only time will tell.