Fran O'Sullivan: Alas, poor public. We know only heavy taxes

Good players seldom hover over the board. After you decide on your move, take a firm hold of the piece and move it to the right square. Hovering shows you are nervous, undecided and in doubt of your game. That gives your opponent a decided advantage and you may be headed for a fall.

Finance Minister Michael Cullen (and Revenue Minister Peter Dunne) take note.

That truism from a skilled speculator applies as much to your game - taxation - as it does to chess or checkers.

Late last year you said you envisaged bold measures would emerge from your proposed Business Tax review which would be aimed at giving better incentives for productivity gains and improved competitiveness with Australia.

I gave a little cheer from the sidelines of reporting global trade talks in Hong Kong.

Finally, it seemed as if the Government was about to get to grips with the reality that other nations treat taxation as global war, using every device they can to persuade corporations to ship profits their way so they can really get to clip the ticket when the boat unloads rather than just picking up temporary mooring fees.

That's the reality of international business Australasian-style where it makes sense for the many Aussie corporates with NZ subsidiaries to use transfer pricing and other measures to avoid paying this country's higher headline corporate rate (as much as decently possible).

It's all perfectly legal - but right now it's not New Zealand's tax base which is benefiting.

But while we've all been off at the beach your great mate, Peter Costello, has been getting bolder. The Australian Treasurer isn't going to wait around for New Zealand to play catch-up sometime in 2007 (or for you to go one better if your political rhetoric is to be taken as read). He's already lining up another round of reforms for his 11th Budget on May 9.

Admittedly, Costello's public focus is mainly at the personal level where New Zealand tax rates are less onerous than those of Australia.

He may also steal a leaf out of your book, Dr Cullen, by increasing family benefits for families close to the average income of A$40,000 to A$50,000.

And that potential really worries analysts like Centre for Independent Studies research director Peter Saunders who is concerned at the low level - 40 per cent - of Australian households that will pay no net tax as a result. We're still waiting for comparable figures here which single out just how many net taxpayers will be left to foot the bill when your own Working for Families election bribe kicks in.

When those figures come out, they will not be a pretty picture.

The fundamental point is that - while you enjoy concreting - the Australian Treasurer is not standing still.

Whether he ultimately pumps more ballast into the holding tanks of a swag of Aussie families - by putting them on the welfare teat or gives them tax cuts - the upshot will be the same.

There will just be more incentives for even more hard-working New Zealanders to join the drift across the Tasman with the sure knowledge that they will not only be paid higher wages but will be able to keep a bit more of that increased pay in the future.

But wait, there's more.

Australia will get even more attractive again when new tax thresholds kick in mid-year. At that point, you will only pay 30c in the dollar up to A$70,000.

And only those earning more than A$125,000 - some 3 per cent - will pay the top rate of 47c in the dollar.

Wait then for the jockeying within Australasian corporates to deploy more of their senior executive staff at their Sydney or Melbourne HQs rather than in Auckland.

It will be even more attractive if Liberal MP Malcolm Turnbull (and John Howard) does manage to persuade Costello to cut the top personal tax rate, not just fiddle with the thresholds.

Costello was not about to cave in when Turnbull ignited the Australian tax debate last year.

But now that he has grabbed the key piece, he is determined to move it quickly, not string out the process.

Don't get me wrong here, the Australian tax system is just as corrupt as ours.

Both you and your great mate have been running obscene surpluses where the only surefire winners - your Governments - pocket far too much of their citizens earnings through bracket creep. But while Costello is finally getting round to returning some of the proceeds of this legalised extortion racket - we're still waiting for you to bring your own threshold changes forward. Even the trade unions want you to move now.

On the business side of the equation, Costello is (justifiably) getting beaten up for taking too long to move on root-and-branch tax reform. However, there is also broad recognition within Australia that its Government needs to make more tax-related changes to boost their own companies' productivity.

So why are you and the Revenue Minister not upping your own tempo accordingly to make sure you steal a big march on your great mate in your 2006 Budget not next year - which is too late to get a competitive advantage.

Peter Dunne has indicated the New Zealand company tax rate of 33c will have to come down well below Australia's 30c rate to be truly competitive.

He is worried that New Zealand risks becoming a real backwater if bold measures are not taken.

Even your tax officials, like the IRD's gutsy Robin Oliver, have been strongly promoting the line that the key issue for multinational companies is the headline tax rate, not the overall investment environment.

But in public, as with the Treasury officials who believe tax cuts will promote economic growth, you have been far too dismissive of your officials' advice.

If you are sincere about this country becoming competitive with Australia, you will also face some tough debates with your great mate.

Mutual recognition of imputation credits is way overdue and is hindering investment in New Zealand.

But Costello will not want to forgo the free ride the Australian Exchequer gets. He pretty much told New Zealanders that at a Wellington business function last year.

Then there are your capital gains taxes on foreign equities which entice far too many New Zealanders to prop up the share price of hopelessly monopolistic local companies like Telecom instead of diversifying their investment risk through international holdings.

You know this is a rort, that's why you do not instruct the Cullen Fund to invest onshore at the expense of prudent risk management.

If you really wanted to be bold, you could also steal a proposal from your political enemy, John Key, who advocated turning New Zealand into a mini-Irish-style tax haven for foreign companies.

Just don't dither any more.

Be bold and get on with it this year not next.

* Next week: Who's stealing our bread.