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English says government may not fully align personal and trust tax rates; corporate rate may be lower than rest

English says government may not fully align personal and trust tax rates; corporate rate may be lower than rest

Finance Minister Bill English has given more detail on the tax reforms likely to be announced in the May 2010 budget, arguing that the government may not need to fully align the top personal income tax rate and the family trust rate. It also does not necessarily need to align those rates with the corporate tax rate, which may end up significantly lower than the top income tax rate to ensure New Zealand does not get out of line with Australia. The Tax Working Group recommended that the government look to align the top personal income tax rate, the corporate tax rate and the family trust rate to close a loophole that has encouraged investment in property, which is relatively lightly taxed. English told a Massey University Finance conference in Auckland that the government was still considering how the corporate tax rate, the top personal tax rate and the family trust rate should relate to each other, "mindful that our company tax rate needs to be competitive internationally." Aligning those rates remained the government's medium term goal, but the government was considering "whether it was affordable and whether it fitted with other equity considerations," he said. Here are his full comments below. Here is a link to the full speech on Beehive.govt

Our early advice is that aligning the trust and top personal tax rates is the most important issue, because they are both final taxes. By contrast, company tax is an interim tax until a taxpayer's own personal tax rate applies - although it does need to be competitive internationally. There are two other important considerations. First, complete alignment may not be necessary to eliminate many of the integrity problems with the current system. Substantial gains could be made by aligning the top personal tax rate and the trustee tax rate, which are both final taxes, and having a company tax rate not too far below this. Second, complete alignment may not be sustainable over time. Around the world, company tax rates are generally falling and, at 30 per cent. New Zealand's company tax rate is on the high side compared with many other developed countries. Remaining competitive with other countries may be more important than alignment - if not now, then at some point in the future. This is a complex area with many competing considerations. For example, cutting the company tax rate may just give a windfall gain to foreign business owners who would have invested in New Zealand anyway. The Government has asked for more work to be done on these issues. What we do know is that New Zealand's company tax rate can't get too far out of line with Australia's. Currently they are both at 30 per cent, but Australia is reviewing its own tax system and may consider dropping its company tax rate. The Government will watch events across the Tasman with a great deal of interest.

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