KEY POINTS:
Here's a challenge for the 80 chief executives who will join Finance Minister Michael Cullen on November 1 to discuss options for next year's Budget: Are they prepared to argue for an internationally competitive tax environment which lets middle and so-called high-income Kiwis keep more of their own
cash, as even Australian Labor Leader Kevin Rudd is now advocating?
Or will they, on the back of some rather curious ShapeNZ polls, endorse a raft of alternative priorities that will then be used to back up Cullen's reluctance to make meaningful personal tax cuts?
The CEOs will front up for their soiree with Cullen as Australians get ready to vote on whether to retain John Howard's Liberal Coalition or opt for Rudd's Labor Party.
Last week Cullen reacted to Australian Prime Minister John Howard's pledge to introduce an A$34 billion (NZ$40b) tax-cut plan by saying "it was not the kind of programme you would expect from a Labour-led Government".
But Rudd put the torch to that particular conceit by pledging to match all but the last A$2.9b of Howard's cuts.
The cuts will substantially increase the transtasman tax wedge in Australia's favour and make it harder to retain our highly skilled people.
The Howard plan, endorsed by heir apparent Peter Costello, means that, from 2009, Australia's top tax rate will fall from 45c to 42c and cut in at A$180,000 (NZ$214,000) a year. Income between A$80,000 and A$180,000 will be taxed at 37 per cent, down from 40 per cent. In the middle band, income between A$37,000 and A$80,000 will be taxed at 30 per cent. Those earning below A$37,000 will continue to pay 15 per cent, and those earning less than A$16,000 will pay no tax.
This is a major competitive threat to New Zealand.
But judging by the statements released ahead of the Business Council for Sustainable Development's second Business Budget Summit, New Zealand's chief executives are likely to be herded into promoting an unambitious approach.
On October 5, the council released a paper by Deloitte which put forward two options for debate:
* Dropping the corporate rate to 28 per cent ($360m cost) and shifting the top 39 per cent and middle 33 per cent rates down to 28 per cent, at a cost of $1.6b and $0.6b respectively, and leaving the bottom 19.5 per cent rate unchanged.
* Leaving the corporate rate at 30 per cent but bringing the top personal and middle rates down to 30 per cent, at a cost of $1.3b and $0.4b respectively.
Deloitte had clearly focused these options on addressing the existing tax wedge in Australia's favour which has acted as a magnet to pull ambitious and skilled Kiwis, as well as a wodge of NZ companies, across the Tasman.
The council had also tabled a third option, increasing GST from 12.5 per cent to 20 per cent and lowering personal and company tax to 20 per cent. But this was not costed by Deloitte.
Since then Cullen has also unveiled a $2.6b cash surplus for 2007, which indicates considerable headroom room for personal tax cuts.
But instead of pushing for an ambitious response, council chief executive Peter Neilson released a statement headlined "New Zealanders' tax cuts expectations relatively modest".
Neilson pointed to research undertaken for the council (the ShapeNZ polls are not commissioned from the acknowledged research companies) which it claimed showed 66 per cent of New Zealanders would accept a tax cut of $20 a week of less. Neilson estimated such a cut would cost $2b. Forty-eight per cent of those surveyed would accept a tax cut of $10 a week or less.
Neilson said there was overwhelming support for personal tax cuts provided "we don't need to cut social spending or put up prices or interest rates".
The reality is that the Deloitte options are not focused on delivering just $20 a week extra for everyone.
Under Deloitte's first option, a taxpayer on $65,238 would get an extra $32 a week. Someone on $80,000 would get an extra $64 - an amount that might just persuade some of our talented people to stay in New Zealand.
But the council appears to be shying away from mentioning the extra cash that could be delivered, simply because Labour has categorised such people as rich.
The problem is Neilson couches policy options from such a long-term perspective that other business lobbyists wonder if he isn't acting as a Labour Government sleeper agent rather than an objective policy pragmatist.
This year's summit covers:
* How to manage the health funding crisis.
* How to fix the skills shortage to ensure sustainable economic growth.
* The long-term path to personal tax reform.
Trouble is yet another ShapeNZ poll suggests 68 per cent of New Zealanders support using taxes to create a new Cullen-type fund to pay for future health needs for an ageing population (the council claims 62 per cent still support this notion even if it means delays in personal tax cuts).
At their first summit with Cullen in 2006, the chief executives ignored the 800lb personal tax gorilla (to use a business cliche). Instead of going to bat for cuts, they circumscribed debate by issuing the results of a poll that they said showed business leaders narrowly supported boosting social spending ahead of tax cuts.
I don't know who took part in that particular ShapeNZ poll, but the results run counter to the views of most business decision-makers I talk to and persistent Treasury advice advocating personal tax cuts to stimulate growth.
The council boasts that several summit recommendations were reflected in Cullen's 2007 Budget, including:
* Compulsory retirement savings - funded by tax cuts (the Budget moved some way on this).
* Ensuring Government agencies were required to procure sustainably.
* An international tax review which it hoped would cover the tax treatment of relocation expenses, the treatment of overseas retirement savings as well as a task force to determine how to make New Zealand more attractive to wealthy individuals.
Cullen and Revenue Minister Peter Dunne were still considering adding personal taxes to the 2007 Budget when the 2006 summit took place.
The chief executives' failure to use their golden opportunity to promote New Zealand's competitiveness rather, than build on the contrivances of the ShapeNZ polls, may well have played into New Zealand's subsequent loss of competitiveness against Australia.
Let's hope they can be a bit braver next month.
