New Zealand Finance Minister Michael Cullen hinted yesterday that he would
be prepared to cut the country's 33% rate of corporate tax in order to improve
its competitiveness relative to Australia, its nearest and largest competitor.
Dr Cullen told Parliament's finance and expenditure committee that the government's
review of business taxation would be considered a success if its conclusions
allowed him to cut company tax.
However, as ever, Dr Cullen sounded a cautious note over the public finances,
arguing that tax reform must be carried out within the constraints of the budget.
He has also rejected calls to lower the 39% top rate of income tax.
"As I have been saying for some time there is very little room for significant
fiscal loosening," Dr Cullen explained in a statement announcing the date of
the 2006 budget, which will be delivered on May 18.
"This government entered the last election with the tightest fiscal policy
of any party and we intend to remain fiscally responsible," he added.
Nonetheless, Dr Cullen stated that Budget 2006 will underline the government's
"commitment to transforming the economy".
"We need more globally competitive firms and this budget will continue
efforts towards building a more dynamic, knowledge-based economy," he declared.
The review of business taxation forms a key part of post-election confidence-building
measures with the United Future and New Zealand First Parties, and is aimed
at giving better incentives for productivity gains, and improving competitiveness
with Australia.
However, Dr Cullen has recently found himself fending off criticism of the
government's plans, with opposition leaders calling on him to use the review
as an opportunity to cut tax rather than, as National Party finance spokesman
John Key said yesterday, perform "a deck chair-moving exercise" in
terms of revenue.
Mr Key has also alleged that the government is studying plans to re-impose
a payroll tax, abolished in the 1970s, to compensate for any loss of revenue
brought about as a result of the business tax review, a move he said would be
ultimately self-defeating in the context of improving New Zealand's tax competitiveness.
“I understand that Treasury and Inland Revenue officials are studying
such a tax in combination with a cut to the corporate tax rate,” stated
Mr Key.
“Business taxes have to come down so we are more competitive with Australia,
whose Government is gearing up as we speak for even more tax cuts in its next
Budget," he added.
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