Bold Aussie tax review would force tax changes for NZ

Friday 24th July 2009

If Australia made big changes to its GST or personal tax rates, the pressure would be on New Zealand to respond to maintain trans-Tasman competitiveness, says Finance Minister Bill English.

Speaking after an address to the New Zealand Shareholders Association annual meeting in Wellington this morning, English told BusinessWire that the comprehensive tax system review occurring in Australia could deliver dramatic outcomes which would have inevitable flow-on effects.

"They face the same choice as us," he said. "Do you tinker with your system or do you do something bold like change the direct/indirect tax mix,” he said. “If they did something like put their GST up and dropped their income tax rates and their company rate quite a bit, that would have an impact on us.”

"Or if they went into a land tax, which is all very fine because they've got lots of land, it would be at a very low rate. But any significant extension of the (tax) base gives you even more opportunity for being competitive income and company tax rates," he said.

However, New Zealand and Australia could both expect a tax competitiveness advantage over the many other OECD countries which had borrowed far more heavily to stimulate their economies and stave off a deeper global recession and would have to raise taxes to start a credible public debt repayment programme.

"The UK, the US, and Europe will all have to raise taxes because their finances are in such a mess," English told the NZSA.

"That will be an advantage for New Zealand and Australia" which, despite using fiscal stimulus to smooth out the depth of the global recession on their own economies, had not borrowed to anything like the extent of other OECD countries to stave off a deeper recession.

"The trade-off is to ensure we have the most efficient tax system" and to keep a close eye on the Australian review because "they may do something quite clever and we don't want to be caught flat-footed." English said he had no inside knowledge of the Australian Government's thinking or the likely findings of the tax review.

In New Zealand, a tax review group led by Professor Bob Buckle at Victoria University is to report by the end of the year, and has an open brief to consider all options, although Prime Minister John Key has already ruled out a capital gains tax on the family home. A key issue is to deal with the growing complexity of recent years caused by an array of misaligned company, personal and investment tax rates that had emerged in recent years.

Commenting on the state of the New Zealand economy, English said the biggest difference he saw between reactions to the current recession and that of the late 1980's and early 1990's was the "resilience of New Zealanders".

"Twenty years ago, New Zealanders were paralysed by the scale of the change. This time around, people know what to do. They are much more pragmatic; they're not asking politicans to for the answers; they're rolling up their sleevfes and getting through this recession."

Businesswire.co.nz

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