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David Chaston details the key news in 90 seconds at 9am in association with BNZ, including news with news that Bill English has been dampening expectations about the amount of reform there will be in the upcoming budget.

He is now strongly hinting that the government is unlikely to align the personal / trust / and corporate tax rates.

In fact, finding a revenue-neutral set of reforms without making meaningful reductions in government spending is proving too hard, it seems.

There are also reports the Government is intensively polling around these issues, trying to ensure it doesn’t get its supporter base too grumpy.

And, the Government plans to create a ‘Super regulator’ for capital markets that combines the Securities Commission, the Companies Office and the disciplinary section of the NZX. All aimed at rebuilding confidence in stock markets and other securities.

In the US, there are reports overnight that manufacturers there are starting to hire, with both call-backs of laid-off workers, and new hires on the increase, as prospects improve.

However, there was also a report that new jobless claims for unemployment benefits are still rising.

And Wal-Mart, the world’s largest retailer, reported its 4th quarter earnings, and that showed a 1.6% decline in sales of its US stores. It put the decline down to less store traffic, and interestingly to deflation in the price of groceries and electronics – items that make up 40% of its trade.

But it is an enterprise that benefits from deflation – its profits jumped to record levels.

Overnight markets were quiet, with exchange rates pretty much unchanged. However, the Euro continues to take a hammering, and it is now at its lowest level against the NZD in more than a year. The UK Pound is also starting to come under pressure.

Finally, out today are the six month Crown accounts, which will give an early indication of the size of Bill English’s immediate problems.

Bernard Hickey is reporting from Wellington today and will be back on Monday.

Finance Minister Bill English was asked by a couple of questioners at a Massey University Finance conference in Auckland today about his advice to young professionals thinking of leaving New Zealand because of relatively low wages and a lack of opportunities. One queried whether the government was being ambitious enough with its tax reforms.

One asked what his advice would be to a young New Zealander who wanted to work overseas. English replied:

“Just Fly Air New Zealand. Go off and do it. Any Kiwi kid is a globally attractive human resource.”

But English said the government’s role was to reform the economy enough to make it attractive enough for those New Zealanders to come home when it was time to have a family.

Asked what he told his own children at the breakfast table, he said: “I tell them I’m going off to work so that when they’re 30 they can be back here to raise their kids.”

English said the aim was to make New Zealand attractive for those wanting to run and start small businesses, rather than for those working in very global big businesses. “If you want to run a big oil refinery or be an M&A banker then off you go,” he said, adding that those who wanted a more entrepreneurial and innovative place to live and work should be able to return home.

He said there were no magic bullets for reforming the economy.
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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

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John Key has indicated an interest in tweaking tax rules to encourage the development of a financial services hub in New Zealand to provide back office type services for fund managers in the Asia Pacific region. The NZHerald reported on Monday Key as saying such a move had been studied (but not released) by the Capital Markets Development Taskforce and could generate 3,000 to 5,000 jobs with an extra NZ$250 million of tax revenue. (Adds My View below)

Mr Key said Ireland had “done a lot of this work. It was cost effective, but also predictable.”

The Prime Minister became very familiar with the reforms in Ireland when he was London-based head of Merrill Lynch’s global foreign exchange business. He shifted a lot of the bank’s business to Dublin.

Fran O’Sullivan has focused her NZHerald column this morning on the idea of a Asia Pacific Funds hub and the involvement of Craig Stobo. He is the chairman of fund management administration business Appello Services, which is 30 per cent-owned by the NZX. Stobo presented the idea at last year’s Job Summit, Adam Bennett reported in Tuesday’s Herald. Stobo is looking for a tax-free set-up.

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Bernard Hickey delivers a special report on how New Zealand’s tax system was unbalanced and then broken by politicians tweaking rules, leaving it full of holes and ripe for avoidance.

The current government’s reluctance to truly reform the system is likely to push the Inland Revenue Department further down the route of trying to fix these holes through the courts and legal precedent. This leaves an unfair, imbalanced and inefficient tax system that will handicap our economy.

Meanwhile, tax lawyers, accountants and lobbyists will employ thousands to continue both hunting for loopholes and trying to close them. We need less activism through the courts and more sensible lawmaking.

The problem is it is politically easier to ignore the problem and hope a beefed up IRD can use the courts to do the work some real reform would do much quicker, much more comprehensively and with much more certainty.

Bernard Hickey interviews Labour Finance Spokesman David Cunliffe about John Key’s speech last week on tax reform. Cunliffe says the tax reforms won’t transform the economy and aren’t likely to be fair. However, he says Labour agrees with the National Government about the need for economic reform and the causes of New Zealand’s imbalances. Labour has offered bi-partisan talks on tax reform, but the offer has not been taken up by the government, Cunliffe says.

Cunliffe, a member of Parliament’s Finance and Expenditure (FEC), also talks about Finance Minister Bill English’s comments to the FEC on a ‘bright line’ test for property traders to replace the current ‘intent’ test, and John Key’s comments on ring-fencing of losses by property investors.