By Alex Tarrant
Any future cuts in New Zealand's corporate tax rate to match moves called for in Australia would be balanced against the government's desire to get its books back to surplus, and future spending commitments, Finance Minister Bill English says.
The Australian Business Tax Working Group on Monday released a consultation paper on the costs of a recommendation of the Henry tax system review for the Australian government to cut its company tax rate to 25% from 30%. The Group said it believed the government should strive to achieve "a materially lower rate" of corporate tax in Australia.
That would increase Australia's attractiveness for foreign investment and ultimately benefit workers, the Group said.
But the hurdle for such a move appears high, with Australian Treasurer Wayne Swan saying any tax cuts must be revenue neutral, meaning the shortfall would have to be met by cuts to existing tax breaks that benefited businesses, the SMH reported this morning.
NZ needs to watch
PwC Tax Partner Geof Nightingale, who was a member of the New Zealand 2009 Tax Working Group, said the government needed to closely watch any outcomes from the Australian business tax review.
"New Zealand needs to watch carefully. We currently enjoy a lower company tax rate (28%) than Australia (30%) and this gives us a competitive advantage in attracting foreign investment," Nightingale said.
Speaking to media in Parliament Buildings in Wellington on Tuesday morning, Finance Minister Bill English was dismissive of talk that the Australian corporate tax rate might be cut.
"They've just cancelled their most recent tax cut for companies - they were going to reduce it from 30 to 29 [percent], and they didn't proceed with that, so anything about 25 cents is speculation," he said.
"We're always looking out, if we can afford it, to have a fair and efficient tax system, and we think we've got the balance about right," he said.
"Now, we wouldn't necessarily chase Australia. We'd have to balance it up with the need to get to surplus in 2014/15."
While English would not rule out cutting New Zealand's corporate rate if the Australians cut theirs below 28%, he said the government was not about to make significant tax cuts, as it had that surplus track in mind.
In following years the government also needed to focus spending on areas squeezed by cutbacks.
"There's a lot of variability in tax revenue, and we're very keen to get to surplus," English said.
"We've piled up a very large amount of public debt, which we want to start paying off. We've got obligations to the New Zealand Super Fund for the long-term cost of super. You'd have to weigh that up against spending pressures as well as the desire for lower taxes," he said.
5 Comments
Dead correct JB. The company tax rate is in essence merely a withholding tax through which you can get a time deferral advantage. And ironically, as the corporate tax rate comes down, because you then have to use the higher rate imputation credits, or lose the difference, the actual reduction forces you to crystalise the tax liability.
The only important tax rate is the ultimate one that company income is taxed on, which will be the top personal tax rate, or the Trustee rate, meaning, 'tax' on NZ income is generally 33% (or the lower tax rates on personal income below $70,000).
There's a lot of doublespeak from the politicians around this. English can say what he likes about a lower corporate tax making us competitive, but via the above, he's lying. Worse, on the Penny and Hooper win for IRD, let's face it the majority of small to medium sized companies - given IRD are casting the net so wide - have a tax rate that is the highest personal rate of the shareholder employees.
Alex Tarrant blindly quotes Bill English who said:- "They've just cancelled their most recent tax cut for companies - they were going to reduce it from 30 to 29 [percent], and they didn't proceed with that" he said.
That should read "and they couldn't proceed with it"
Makes a big difference to the meaning.
They couldn't proceed with it because they couldn't get it through the senate, because the Greens blocked it, because the Greens saw it as a free kick to the "big polluters".
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.