While it should have been no surprise, the business tax cut unveiled as part of the Budget yesterday was lapped up by investors, who sent the sharemarket's benchmark index to fresh highs.
The NZX-50 vaulted from around 4255, past the high set a week ago, to record itshighest close ever at 4275.57.
Finance Minister Michael Cullen said the reduction in the headline rate from 33 per cent to 30 per cent, effective from next April, was expected to cost the Government $675 million in the first full year and $2.1 billion over the first four years.
"Business has long argued that such a reduction will assist in boosting productivity and competitiveness and attracting more foreign direct investment increasing labour productivity and wage rates," Cullen said in his Budget speech.
"It should also reduce the attractiveness of structuring businesses so as to report minimal profits within New Zealand."
A raft of other business tax changes including a reduction in the rate for portfolio investment vehicles, tax credits for research and development and more favourable rules for New Zealand-controlled foreign companies would lift the total cost of the changes to $3.4 billion over four years.
New Zealand Exchange chief executive Mark Weldon said the reduction, which was widely expected, would free up capital for businesses to make investments in growth such as research and development, new plant, new market development, sustainable practices and jobs.
Business New Zealand chief executive Phil O'Reilly welcomed the cut but wanted more.
"It's a good first step, lining up with Australia and removing that competitive disadvantage, but if the Government wants New Zealand to improve its competitive position, simply matching Australia is not going to be good enough.
"Let's now keep it under active review and really focus on bringing it down quite rapidly to give New Zealand companies a competitive advantage."
Macquarie Equities investment director Arthur Lim said news of the tax cuts added to positive sentiment from overseas markets yesterday, lifting stocks across the board.
But he said listed property trusts were set to particularly benefit from the changes as those that opt to become portfolio investment entities in October would now pay only 30c in the dollar on investment returns.
Kiwi Income Property Trust rose 3c to $1.71, Macquarie Goodman Property Trust rose 2c to $1.59, and ING Property Trust 1c to $1.24.
KPMG tax partner John Cantin said the impact of the changes would take some time to determine.
"There will, however, clearly be effects on dividend and capital policies. Timing of dividends (pre or post change) will be a particular focus.
"[With] no change to the company tax rate since 1988, there are some quite significant compliance issues."
Taking a cut
* Corporate tax rate cut to 30 per cent from 33 per cent.
* Tax cut from April 1.
* Tax to cost $675 million in the first full year and $2.1 billion over the first four years.
