Tax review proposals 'interesting', says Cullen

12.00 pm

Finance Minister Michael Cullen says the Government will not support the two-rate income tax scheme recommended in the final report of a tax review released today. He says the Government favours "a more progressive regime than this model allows".

The changes recommended by a committee chaired by Rob McLeod would have seen the top tax rate lowered from 39 per cent to 33 per cent.

"The Review has come up with a number of interesting ideas in the areas of international tax and the tax treatment of entities," Dr Cullen said.

"These have the potential to stimulate economic growth and will be incorporated into the government's tax policy programme although there are some design details and implementation issues to be worked through before any final decisions can be taken."

Dr Cullen reaffirmed the government's opposition to a tax on owner-occupied housing, and noted that the Review does not recommend one, having acknowledged the strength of public resistance to the idea.

He rejected a proposal that would have removed all tax on alcohol, tobacco and gambling, and reduced petrol tax by 18 cents.

An increase in GST would also be unacceptable.

"Labour promised before the last election that the GST rate would not be increased and this is a government that keeps its promises."

Cr Cullen thanked Rob McLeod, Srikanta Chatterjee, Shirley Jones, David Patterson, Ted Sieper and their team of advisers for their work.

"We have always been clear that we would not expect to pick up all the Review's recommendations. But they have made a useful and, I am sure, enduring contribution to the tax debate.

"The Review finds there is much to commend the existing New Zealand tax system and that it compares quite favourably with other jurisdictions. There is no need for large scale change to the basic architecture.

"There is, however, room for improvement."

Dr Cullen said he would give a fuller statement of the government's initial response in a speech on Friday to the annual tax conference hosted by the Institute of Chartered Accountants.

He reiterated that the Government would not implement any significant new taxes before next year's election.

Opposition parties have criticised the government for rejecting the report's recommendation to drop the top tax rate from 39 to 33 cents.

ACT finance spokesperson Rodney Hide said the $1m McLeod Tax Review was right to call for a reduction in the top rate.

"We should be striving towards a top rate of tax of twenty cents in the dollar. The McLeod team's proposal for 33 cents would just take us back to where we were, and is only a start."

"We must continuously work to boost returns from investing and working in New Zealand. That means dropping the company rate of tax and dropping the personal rate of income tax," Mr Hide said.

National's Associate Finance spokesperson, David Carter welcomed the report's conclusion that lower taxes were better for the economy.

"The report raises the level of political debate above the Government's narrow ideological view. New Zealand needs to be competitive for investment and needs to retain and attract talented people. Lower taxes will help both."