Tax windfall far from certain says National

The Government's $500 million tax windfall to be spent on transport is not a certainty, National claims.

Much of the windfall the Government announced last week would go on new transport projects might have to be repaid if Inland Revenue loses a dispute with the big Australian-owned banks, National finance spokesman John Key said.

Last Thursday Finance Minister Michael Cullen announced a $544 tax windfall, of which $368 million came from company tax as the "financial sector" made unexpected payments.

He surprised everyone by ploughing $500 million into a one-off boost for transport around the country.

But Mr Key said he understood much of the windfall was "tax in dispute" - payments made to IRD by the Australian-owned banks despite their dispute so they were not heavily penalised later if they lost their court cases.

ANZ-National, ASB, Westpac and BNZ are disputing IRD back tax bills totalling $1.6 billion relating to "structured finance deals" that minimised the tax they paid in New Zealand. A tax law passed this month blocks any future deals.

Mr Key said it was irresponsible for the Government to spend money it might have to pay back later with compound interest. And he pointed out that the payment could only be the thin edge of the wedge with total back tax bills of $1.6 billion plus compounding interest.

He questioned whether other "tax in dispute" payments had already been made and the Government had already spent it.

Mr Key said that now made it more imperative that Dr Cullen reveal all.

Treasury adviser Steve Leith said normal practice with revenue in tax dispute cases was to make the money available for spending.

It would be noted as contingent liability in the Crown's books, however.

A spokeswoman for Dr Cullen did not know if the windfall was made up of tax in dispute revenue, and IRD refused to comment.

Mr Key said Dr Cullen was creating a significant future liability for a government to address.

"We are a long way away from believing this is money in the bank and it's just outrageous to be spending this 12 weeks out from an election on what is nothing more than an election bribe."

PricewaterhouseCoopers tax partner John Shewan said it would seem "unwise" for the Government to spend money it might have to pay back.

He did not know whether the transport funding had come from "tax in dispute" payments from the banks.

But if it was, he said, accountants would tend not to spend that kind of money until it was confirmed it was cash in the bank.