Corporate tax cuts on Government agenda

Peter Dunne

The company tax rate will be just one issue on the table when the new Government reviews business taxation, says Revenue Minister designate Peter Dunne.

"All the parties except Labour campaigned for a cut to the business tax rate," he told the Herald. "It [the review] is driven out of that. But it is a bigger issue than just rates."

Business leaders have been lobbying the Government to match Australia's corporate tax rate of 30c in the dollar. New Zealand's rate is 33c.

"We have to look at compliance issues and the comparability of our regimes with Australia," Dunn said. "The bottom line is we need to be competitive, more than competitive, with Australia."

The agreements between Labour, United Future and New Zealand First commit to a "review of the current business taxation regimes with the view of ensuring the system works to give better incentives for productivity gains and improved competitiveness with Australia".

"The key issue is whether you go the rate route or the incentive route, because I don't think you can do both," said PricewaterhouseCoopers tax partner John Shewan. "That's why I am a little troubled by the signals being sent here in terms of looking at incentives for productivity and so on."

The risk was that the company rate issue, which was of most concern to businesses, would be dismissed in favour of a potpourri of other issues, Shewan said.

The proposed carbon tax is also to be reviewed and New Zealand First wants a new tax regime for the racing industry and United a new one for charities.

The agreement with Dunne, who was Revenue Minster in the mid-1990s, also calls for a discussion document on income splitting, a longstanding United Future policy.

"Income splitting is terribly expensive," Shewan said.

"There's a real risk of the total trifecta of Labour, New Zealand First and United policies being so expensive it will rule out ... a company tax cut."

KPMG tax partner John Cantin said that if the review resulted in a focus on the company tax rate that would be positive. KPMG's regular survey of company tax rates within the OECD continued to show New Zealand falling behind.

"The question is whether the review is real," he said. "The McLeod review came out of the National-New Zealand First coalition agreement, but in the end not much came of it."

Deloittes tax partner Thomas Pippos said it was good to see a return to the division of labour between Revenue Minister and Finance Minister. "It's almost like separating the roles of chairman and chief executive, in terms of corporate governance."

Dunne would have more time to commit to tax policy than Michael Cullen had been able to while holding both portfolios, along with the roles of Attorney-General, leader of the House and Deputy Prime Minister.

Compared with a junior minister in a major party looking to move up, Dunne would be able to be more independent, Pippos said.

"He will be viewing this as his claim to fame and looking to make a difference."

Dunne said one of the earlier pieces of work before him would be the proposals for changes to the tax treatment of foreign portfolio investment. It includes controversial plans for a tax on unrealised capital gains.

"He will bring fresh perspective to issues like that," Pippos said.