New Zealand business lobbyists are urging policy makers to ditch the double taxation of dividend returns that cross the Tasman, saying it deters investment and holds back economic growth.
Mutually recognising imputation and franking credits, where businesses provide against tax on shareholder returns for tax paid at the company level, would lift trans-Tasman gross domestic product by $5.3 billion by 2030, according to a study by the New Zealand Institute of Economic Research and the Centre for Independent Studies. Of that, New Zealand would grow by an estimated $3.1 billion, with Australia expanding by $2.2 billion.
"This would be expected given the far larger share of New Zealand's equity investment that comes from Australia," the report said.
"Even though Australia's gains are small, this study finds they are indeed net gains rather than losses, that is even after taking into account the initial tax foregone."
Australia has consistently opposed mutual recognition of the tax credits since the 1990s as it would cut the nation's Federal tax take for New Zealand's benefit, something seen as politically unpalatable.
"The existing regime can be seen as a form of tariff on trans-Tasman investment flows" which leads to the inefficient allocation of resources, the report said.
"Trans-Tasman investment decisions are being made at least in part to minimise tax payments, rather than on a purely economic basis," it said.
If mutual recognition of the tax credits was introduced the study estimates household consumption would increase by $7 billion by 2030, with larger gains in Australia due to its higher level of tax.
The study was commissioned by the Australia New Zealand Leadership Forum and Business New Zealand, and is part of each group's submissions to the joint investigation by Australia and New Zealand's respective Productivity Commissions into improving the Closer Economic Relations pact.
The Productivity Commissions' draft report is expected to be released on September 18, with a final report flagged before the end of the year.
Since 2009, New Zealand and Australia have been trying to accelerate the creation of a single economic market by aligning a range of areas in business law.