There was always a chance the tax policy wonks in the Treasury and Inland Revenue would turn up to work this morning and have come up with something new for the May 20 Budget.The long-anticipated Australian tax review was announced yesterday and it brough
There was always a chance the tax policy wonks in the Treasury and Inland Revenue would turn up to work this morning and have come up with something new for the May 20 Budget.
The long-anticipated Australian tax review was announced yesterday and it brought a sigh of relief in Wellington.
Hell, tax policy advisers were probably able to have a sleep in this morning.
The main concern for the New Zealand government was the Australians would aggressively cut their company tax rate, thus putting pressure on the New Zealand government to do likewise.
In fact, the Australian Tax Review, headed by that country’s head of the Treasury, Ken Henry, did recommend cutting company tax to 25%.
Federal Treasurer Wayne Swan, however, said the Australian government would only cut it to 28% from 2014.
New Zealand Finance Minister Bill English has indicated an inclination to cut the company rate eventually but the signals from the Beehive are that the more immediate priority is personal a reduction in personal income tax and a lessening of the tax arbitrage between the top rates, company and investment taxation rates.
An immediate need to cut company tax now would have given Mr English much less room for personal cuts.
The Australian decision keeps the issue of international competitiveness alive but takes the immediate urgency off it, PricewaterhouseCoopers tax partner Geof Nightingale said.
However, the issues raised in the Henry review would not go away – and future Australian governments may pick up recommendations the current Labor government is less keen on.
“It’s going to keep the pressure there, no question. Dropping our company rate, rolled out over three or four years – we could do that,” Mr Nightingale said.
Hitting the biggest headlines across the Tasman has been the swingeing increase on resource royalties for companies mining in Australia and these too could have an impact here, albeit indirectly.
These will reap the Australian government an extra $A9 billion and not all of this is being taken up with the company tax reductions and extra superannuation contributions announced by Mr Swan.
The extra revenue from the mining imposts is not fully taken up by the announced changes, Mr Nightingale pointed out.
That suggests the Australian Labor government – which faces an election later this year – is keeping some ammunition, possibly for further personal tax cuts.
