Cullen Blames 'One-Off Accounting Change' For Increased Tax Burden

by Mary Swire, Tax-News.com, Hong Kong

24 October 2007

New Zealand's slip down the OECD's tax burden league table fails to take account of a "one-off accounting change" in the government's budget, according to Finance Minister Michael Cullen.

The recent OECD report on the tax burdens of its member countries saw New Zealand slip to the 13th most-taxed economy of the 30 members. But in a statement released to counter claims that New Zealand's tax burden has increased under the present Labour government, Cullen argued that the OECD figures have failed to take into account billions of dollars in tax relief.

“Half of the apparent increase in the 2005 ratio has been created by a one-off accounting change,” he stated. “Without the change, New Zealand would be roughly in line with the OECD average."

Cullen claimed that the accounting change related to the time at which provisional tax is recognised as revenue. This change resulted in a NZ$1.8 billion (US$1.36 billion) increase in provisional tax revenue in 2005/06, as revenue in the transition year captured more than just the normal 12 months of provisional tax, he explained.

“The initial evidence for 2006 shows a reduction in New Zealand’s ratio of more than one full percentage point, reflecting again the impact of the one-off accounting change. The figures used in the report also include local government revenue, accounting for around two percentage points of the total," the NZ Finance Minister revealed, adding that: “We also know that the report does not take into account the billions of dollars of tax relief that are being delivered through the Working for Families programme."

“I have been clear that personal tax issues are being considered in the context of the 2008 Budget. As this discussion continues, New Zealanders need to consider whether or not revenue reductions should unduly benefit those on higher incomes at the expense of working families and if they want tax cuts implemented in a way that leads to higher inflation. The Labour-led government thinks the answer to both questions is ‘no’," he concluded.

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