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Government Business Tax Document Labelled "Timid"

Fuseworks Media
Fuseworks Media

By Catherine Harris of NZPA

Wellington, July 25 NZPA - Tax experts and critics of the
Government have called a discussion document on business tax changes
"timid" and "disappointing".

The Government unveiled a raft of options aimed at boosting the
country's productivity and kickstarting growth.

It includes the proposal to lower the corporate tax rate from 33c
in the dollar to 30c, to match Australia's
current rate, by 2008.

Other suggestions are targeted tax credits for research and
export market development and reduced compliance costs.

But Finance Minister Michael Cullen made it clear that the
document was a list of options, a "menu
, not a series of one-off choices".

He said larger changes had been considered but left out because
the likely productivity gains were uncertain.

Asked how the changes would be funded, he said there would be no
cuts to existing spending.

Tax experts said the document was lukewarm.

"It's actually quite disappointing," said Jo Doolan, a tax
partner with Ernst and Young.

"If we're serious about competing with Australia, ...they are
already talking about dropping their rate to 28 percent."

She did not see why New Zealand could not afford to progressively
lower its tax rates as far as 20 percent.

Moves toward export incentives were almost "returning to a
bygone era".

Scott Kerse, a tax partner with PriceWaterhouseCoopers, said the
upside was that the Government had ruled out payroll tax and changes
to GST to fund corporate tax cuts.

The introduction of a payroll tax would mean much more red tape,
he said.

Cuts to the corporate tax were also positive, but Mr Kerse said
he was expecting more than a thin "26 pages" in the long-awaited

He was also bemused by the thought of virtually reintroducing
export credits, which w
as a complete turnabout from New Zealand's free trade thinking.

Business NZ's chief executive Phil O'Reilly told Radio NZ that he
agreed with Revenue Minister Peter Dunne that the changes had to be
"affordable and reasonable" to New Zealand.

"I guess we disagree on what's affordable and reasonable,
because we think the changes, on the face of it, look pretty timid.

He welcomed the proposed lower tax rate as a first step. "The
problem with the review that we see is that there's no second

Mr O'Reilly said most businesses felt it was important to keep
the tax system simple, and investment incentives to export or do R&D
tended to complicate matters.

He said there was "no question" export companies deserved a
hand-up but skills and trade and enterprise assistance was a better
channel than the tax system.

"If you give the exporter a tax break, what about the guy who's
made something just down the road that's going to go into the piece
of the machinery that he's exporting? Is he going to get a tax break

KPMG tax partner John Cantin called the document "dull and
boring and seemed overly constrained by attention to fiscal costs".

"It would be better to have a vision of what is really possible
and then to work out whether New Zealand can afford it or not."

Most New Zealand-owned and operated businesses were operated by a
trust or partnership and would not benefit from a company tax rate
change, he said.

Revenue Minister Peter Dunne said the review was the "most
significant review of business tax since 1988".

Aligning the tax rate to Australia's would cost $540 million.
Other costs were not estimated because the baseline was not yet

The two ministers defend
ed themselves against claims they were ducking the question of the
impact on personal tax rates.

They said the changes could not be made in isolation to personal
tax, but it was important to settle the business tax changes first.

Last year Mr Cullen proposed small cuts to personal tax rates,
which were poorly received by voters and seen as a factor in a
resurgence of support for the National Party, which campaigned on
tax cuts.

Submissions must be in by September 8.

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