Thomas Pippos: Taxing times for Peter Dunne

After two months in power, filling a position he previously held under a National Government, what has Peter Dunne done?

The critics would say not a lot. But the jury must still be out as to whether United Future's leader will stamp his mark as Minister of Revenue.

Having held the position before and as the longest serving member on the finance and expenditure committee, Dunne is qualified for the role.

But failure to make a mark could see United Future consigned to the political wilderness.

So what's Dunne been up to?

And how will he be able to make a difference in a minority role, with an influential figure like Michael Cullen still in play?

Business tax review:

One thing that Dunne has initiated/inherited is the business tax review. Inherited in the sense that this is part of the agreement that Labour has with both United Future and New Zealand First to "conduct 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".

Sounds good, but the review will be fraught with difficulty unless it is focused.

And it could suffer the fate of many other reviews, destined to hold up real and virtual dust.

Initial indications are that the review could be drawn out to span the full term of the 48th Government - a death of a thousand consultative cuts.

It would be somewhat sad if all we end up with is yet another process that consumes energy throughout a political term but adds little substantive change.

Details of what is planned are not yet known, but one would have thought that existing reviews (most recently the McLeod report) could have been used as a springboard for the latest review, to enable any initiatives to be implemented well within the current Government's term.

There are other difficulties, like the numerous special interest groups that will inevitably use the process to drive pet projects; identifying tax policy changes that are sensible and, from a political level, visible and meaningful; getting officials over the line; and, finally, getting Dr Cullen over the line. Add to the mix the smorgasbord of tax initiatives mooted in the last election by New Zealand First (23) and United Future (nine) and one ends up with the makings of a pot luck dinner.

At least historically it had a common theme of a reduction in the corporate tax rate.

Charities:


The agreement between United Future and Labour also provides that "a new tax rebate regime for charities will be developed".

To date we have seen no work on this, but efforts are likely to be stepped up next year once registrations under the new Charities Act are completed.

There will be considerable interest in this, from changes to the threshold for the existing charitable rebate and increases for company donation rebates, to big ticket items such as allowing refunds for imputation credits when charities invest in New Zealand companies.

Carbon tax review:


The confidence and supply agreement between Labour and United Future also provides that "a new cost-benefit analysis of the proposal to introduce a carbon tax as part of our Kyoto obligations will be conducted and no legislation introduced before the analysis is completed.

"The criteria and/or the terms of reference for this analysis will be agreed through sector-wide consultation."

In an oral question in the House, Dunne has said his "view has always been that the way in which the carbon tax has been designed to date makes it unworkable".

Anticipated prognosis - terminal. Notwithstanding that, Dunne has said "until that review is completed no decisions will be made on the outcome" of this tax.

Income splitting:


A favourite campaigning point for United Future was in respect of income splitting. Peter Dunne has indicated that a discussion document will be released on this topic. Don't hold your breath, though - the target date for this discussion document is early 2008.

NZ/Australia double tax agreement:


This is a topic of interest to those dealing on both sides of the Tasman - supported by Dunne, New Zealand and Australia have signed a protocol updating the 1995 double tax agreement between the two countries.

Of more moment was the indication that "whether we negotiate a completely new double tax agreement between the two countries is still under review. It will depend in part on whether New Zealand is willing to lower the withholding rates covered by the agreement, a decision the Government expects to make next year".

Expect change, but this is the type of change that does not secure political tenure.

Post election briefings:


An ace Dunne welcomed with open arms was the Inland Revenue Department's briefing to the incoming Government. As he put it, a "constructive contribution to the Government's work on tax issues". Put another way, the strongest ammunition a new Minister of Revenue could have hoped for to drive change in a three-year window. But will he use it?

Putting the scene into context, however, Dr Cullen has stated in relation to those briefings: "I am elected, they're not".

Where to from here:


So what's Dunne done? The scene has been set to achieve material change. Early next year we can expect Dunne to release his planned tax policy programme that will include details around the business tax review.

At that stage we can judge the minister's ambition to drive change and look to evaluate what he plans to do to stay relevant.

A factor not to lose sight of is that National's John Key has the resources and ability to critically attack any inaction by the current Government and Dunne in this area, an opportunity he will undoubtedly take.

The dust is far from settled.

Promises

Pre-election United Future tax policies included:
* Adjusting the 33 per cent and 39 per cent tax brackets by $5000.
* Providing income splitting for couples with dependent children.
* Lowering the company tax rate from 33 per cent to 30 per cent over the next three years.
* Increasing the tax rebate on donations by individuals to charities tenfold, from $630 a year to $6300 and, for companies, from 5 per cent to 50 per cent of net profit.

Pre-election NZ First tax policies included:

* Reducing company tax upon achieving short-term growth goals, beginning with a 20 per cent tax rate for "new exports" net income.
* It was opposed to any increase in general taxation.
* It aimed to reduce personal income tax levels, following the achievement of intermediate growth goals and focused social expenditure.
* It wanted a tax regime which guaranteed that overseas companies were treated the same as New Zealand ones for tax purposes.

* Thomas Pippos is the managing tax partner at accounting firm Deloitte.