Corporate tax cut on table

Hints that the corporate tax rate will be cut this year have gained weight with Treasury papers revealing the idea was being discussed even before the 2004 Budget.

Act leader Rodney Hide, who got the papers under the Official Information Act, said yesterday he believed the Government would announce tax cuts in this year's Budget and the only question was what sort of cuts would be made.

Mr Hide said Progressive leader Jim Anderton had tested the waters in November when he astonished everyone by announcing the left-wing party favoured cutting the corporate rate.

But Government duty minister Rick Barker said tax rates were a Budget matter and "if there are to be any changes they will be announced then".

The Finance Minister received various reports and suggestions from Treasury on different subjects and not all were taken up, he said.

"Mr Hide is getting his usual summer exercise of leaping to conclusions willy-nilly."

However, some political commentators have also suggested the Government may cut the corporate rate this year as it would take one of National's key policies and remove some of the tension from Labour's relationship with business.

One of the Treasury papers dates from April and shows consideration was being given to corporate tax cuts before the last Budget.

"This note responds to your request for information on a policy proposal around company tax rates," the paper to Finance Minister Michael Cullen said.

"Should you wish to proceed further with this proposal, Treasury [and IRD] would value the opportunity to provide you with advice on it."

It discussed the lower company tax rate of 20 per cent but the introduction of a payroll tax which would contribute to superannuation costs.

The other paper dated in October was to Treasury head John Whitehead and outlines some of the benefits and downsides of reducing the company rate from 33 to 30 per cent.

It would have a "positive signalling effect" showing New Zealand was keeping its policies competitive with neighbours such as Australia and would increase investment in New Zealand, the paper said.

However, cutting the rate to 30 per cent would cost about $525 million in lost revenue.

Dr Cullen has been under growing pressure to spend the multi-billion-dollar surplus on tax cuts.

In the December Economic and Fiscal Update the forecast surplus had grown from the Budget night prediction of $5.7 billion for the year to $6.5 billion.

But Dr Cullen said at the update presentation there were huge risks in embarking on any large structural spending or tax changes that would have an ongoing cost.

Mr Hide said the Government's plan to cut the corporate rate would be supported by Act, but personal rates also needed cutting.

National finance spokesman John Key said the Treasury papers suggested the Government was getting advice on cutting the corporate rate or else restructuring it.

Tax rates
* Current corporate rate: 33c
* Top personal rate (above $60,000): 39c
* Middle personal rate ($38,000-$60,000): 33c
* Bottom personal rate (up to $38,000): 19.5c