However, as the cost of living continues to soar and the economy remains on shaky ground, politicians of all stripes aren’t heeding the agencies’ warnings.

Parties that pledge to keep spending limited also want to keep taxes low. Meanwhile, those that want to introduce new taxes have ambitious spending plans.

No party deems it desirable, asking the electorate to pay more to receive less to ensure there is enough money in the kitty for the future.

This is despite Fitch downgrading the outlook of New Zealand’s AA+ credit rating to negative due to the time it is taking to get the Government’s books on a more sustainable path forward in the wake of the Covid-19 pandemic.

In its briefing, Inland Revenue recognised that it was hard to know the extent to which future governments would manage the situation by cutting spending versus increasing taxes.

So, the best approach was to figure out what to tax – and keep this consistent – but ensure tax rates could easily be adjusted as required.

It noted that the value of general government taxation paid in New Zealand, as a percentage of gross domestic product (GDP), was on par with the OECD average at around 34%.

It was comfortable with the vast bulk of the country’s tax take coming from tax on income and consumption, including individual income tax (54%), company income tax (16%) and GST (24%).

However, it saw scope to broaden the type of income that is taxed to include capital gains.

“The absence of a general approach to taxing capital gains can provide an incentive for individuals to reduce their tax liability by undertaking activities that are not taxed rather than those that are taxed,” Inland Revenue said.

“This can reduce a government’s ability to raise more revenue in a way that is progressive.”

Inland Revenue noted that capital gains taxes usually only tax realised gains and exclude the family home.

It wasn’t definitive on which assets should be included in the tax, whether gains should be discounted to account for inflation and whether gains on the sale of assets bought before any rule change should be taxed.

Depending on how it was designed, Inland Revenue said such a tax could generate a fair bit of revenue.

The focus of its briefing was to look at how the tax system raises revenue, rather than how it incentivised certain behaviours.

The department pointed to numerous downsides related to a capital gains tax – the creation of compliance costs, creating a lock-in effect and penalising risk-taking.

But it still believed that “investigating” the introduction of one should be a “priority”.

Labour is campaigning on taxing realised capital gains, at a rate of 28%, on commercial and investment residential property from July 2027.

Rather than use the revenue to build fiscal buffers, it wants to use it on a new initiative – funding three free GP visits a year for all New Zealanders.

Inland Revenue’s other priority was reducing the incidence of people treating personal income, which could be taxed at a rate as high as 39%, as company income which is only taxed at 28%.

The department recognised that this couldn’t be addressed by aligning the top personal income tax rate with the company tax rate.

It would be far too expensive to lower the top personal income tax rate. Meanwhile, businesses would take a hit if the company tax rate rose – it’s already above the OECD average of 24%.

So, Inland Revenue suggested exploring ways to “strengthen the integration of the personal and company tax regime”, including by providing incentives for companies to pay out dividends more frequently, and deeming certain realisation events as taxable.

The Government is currently seeking advice on the tax treatment of loans to shareholders that are unlikely to be repaid, or are never repaid, including when a company owed money is liquidated.

Inland Revenue is worried that some shareholders are using loans to withdraw funds from companies prior to them being liquidated, leaving creditors out of pocket and taxes unpaid.

On the consumption tax side of the equation, Inland Revenue believed the GST rate could be hiked from 15% if future governments needed more revenue.

It recognised such a change would be regressive, as it would eat into a larger portion of a poor person’s income than a wealthy person’s income.

So, it said low-income earners could be transferred cash to soften some of the blow of a higher GST rate.

Inland Revenue believed this would be more effective than having a lower GST rate on essentials, like food.

It said this wouldn’t be targeted, introduced boundary issues (what is essential and what isn’t?) and increased compliance costs.

It also recognised businesses were unlikely to fully pass the lower rate on to consumers.

What about collecting more tax revenue by introducing taxes on wealth, land or inheritance?

Inland Revenue noted such taxes had their pros and cons but feared they would overlap too much with what is already being taxed.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.