Carbon tax in 2007 'highly unlikely' claims Dunne

Peter Dunne

It is highly unlikely a carbon tax will come into force on the scheduled date of April 1, 2007, says Revenue Minister Peter Dunne.

The proposed tax is the centrepiece of the Government's climate-change policy but it is opposed by both parties on which the Government relies for confidence and supply, New Zealand First and Dunne's United Future.

The votes of both the Greens (likely) and the Maori Party (uncertain) would be needed.

In its Government-forming deals with Dunne, Labour agreed that no legislation to introduce a carbon tax would be introduced until after a new cost/benefit analysis of the proposal was done.

"I have indicated to Inland Revenue that given the review that is under way, while they still have to continue some work on the assumption that this will proceed, they have probably got a bit more slack in terms of the timing," Mr Dunne told the Herald.

"Does that mean we will have a carbon tax in April 2007? I wouldn't bet on it. I think it is highly unlikely, frankly, on that timing."

The Government-forming agreements also require a review of the business tax regime with a view to ensuring the system gives better incentives for productivity gains and improved competitiveness with Australia.

"Productivity is still our core problem and Australia is the benchmark simply because it is our largest trading partner and a lot of companies operate in a transtasman environment.

"The fundamental objective is to ensure that the New Zealand environment is more attractive."

The review would cover tax-related costs of doing business.

"I am not getting hung up on the [corporate tax] rate per se and I have been careful to point out that if you are looking at this exercise solely as an adjustment to the rate you are missing the point.

"At the same time it is worth noting that virtually every political party but Labour went into the election with a pledge to reduce the rate," he said. "It is going to be impossible to have a worthwhile discussion about how you make the business tax regime more attractive without addressing the issue of the rate.

"But I am not going to be drawn on what the rate should be or whether there will be an adjustment to it."

Mr Dunne said he hoped the terms of reference for the business taxation review would be completed before Christmas but could not guarantee it.

On the longstanding transtasman issue of mutual recognition of imputation and franking credits, whose purpose is to avoid the double taxation of company profits, Dunne senses a somewhat more constructive environment, at least compared with when he was last Revenue Minister in the mid-1990s.

"There are still some big gulfs to overcome but I think the environment is just a wee bit more conducive to discussing them. [Finance Minster] Michael Cullen and [Australian Treasurer] Peter Costello seem to have established a pretty good working relationship on those issues."

Business leaders also recognised the need to make progress on those issues and that the two countries' futures were now much more inter-related, he said.

"I obviously don't have a magic wand to wave around. New Zealand is not going to move on the capital gains front," Dunne said.

"There has always been an implicit understanding that from Australia's perspective the absence of a capital gains tax in New Zealand makes the full recognition of imputation credits difficult for them to do, whereas we would say there has been a very long bipartisan tradition of having a difficulty with a capital gains tax."

Meanwhile a discussion document on marital income splitting, a longstanding policy favourite of United Future, is not likely until 2007, Dunne said.

But he is convinced it is an idea whose time will come.

Dunne acknowledges that it is difficult and costly to introduce structural change to the relationship between the tax and benefit systems that does not leave at least some people worse off.

"At this stage what we are proposing is the preparation of a discussion. I am not suggesting the solutions are immediate. But I want to get the issues out there."