Australian Budget renews pressure for NZ tax cuts

Calls for tax cuts were rekindled yesterday as the National Party argued that a fresh round of cuts in Australia would attract more New Zealanders across the Tasman.

The Australian federal Government made tax changes the centrepiece of its Budget on Tuesday night, announcing A$37 billion ($59 billion) worth of cuts that affect earners across the board.

There appears to be no prospect of tax cuts in New Zealand when Finance Minister Michael Cullen delivers his seventh Budget next week, and yesterday he was forced to again defend that stance.

National Party leader Don Brash said more New Zealanders would move to Australia because the latest tax changes made it more attractive.

"The significance of the across-the-board tax cuts in Australia should not be overlooked," he said.

"For New Zealand, this means more competition for the skills that we need to keep our economy growing."

Under the changes being made across the Tasman, a 30 per cent tax rate will apply to earnings between A$25,001 and A$75,000.

In New Zealand, a 19.5 per cent rate applies to earnings of up to $38,000, rising to 33 per cent from $38,000 to $60,000. The top rate is 39 per cent.

Deloitte managing tax partner Thomas Pippos said: "Like it or lump it, the Australian Budget sets a line in the sand when comparing ours next week."

Deloitte analysis of the Australian Budget announcements showed that New Zealanders would need to earn more than $182,000 in order to pay less tax than their Australian counterparts.

The analysis is purely of income tax rates, and does not allow for exchange rates or additional taxes and levies.

In an at-times feisty exchange in the House yesterday, Prime Minister Helen Clark and Dr Cullen both deflected Opposition calls for tax cuts.

They pointed out that Australia's top tax rate remains above New Zealand's, and said that the Australian changes would affect high-income earners more than middle-income earners.

"Which I assume is why it appeals to the National Party," Helen Clark said.

Later in the afternoon Dr Cullen suggested the Australian Government may have "gone further than is fiscally wise" in its latest tax changes.

"Some commentators thought they were cutting it a bit fine," he told the Herald.

He added that there had never been much evidence that tax was a big influence on the decision of New Zealanders to move to Australia.

"Those flows have gone up and down quite dramatically over the past 10 years or more."

Dr Cullen has already moved to dampen any hopes of tax cuts in next week's Budget by highlighting forecasts that show the Government's accounts will move into deficit in coming years.

Tax cuts would therefore mean more debt or lower social spending.

- Additional reporting Brian Fallow

* Notes: TAX RATES COMPARED - Extra levies and taxes such as GST and ACC and in Australia Medicare are not included in these calculations, which also have not been adjusted for the difference in exchange rates - this is a NZ$1: A$1 comparison. Rebates are not included and levels of Government assistance, such as Working for Families, have not been factored in. Source: Deloittes. Herald graphic.