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Cullen Sings New Zealand's Praises To Australian CEOs

by Mary Swire, for LawAndTax-News.com, Hong Kong

06 June 2007


Speaking at the Annual International CEO Forum in Melbourne, New Zealand's Finance Minister, Michael Cullen outlined the government's plans for improving New Zealand's investment climate.

He started out by observing that:

"Given the similarities in population between Melbourne and New Zealand, there are similarities in our relationship with each other and with New South Wales - closeness, historical ties and passionate rivalry. And importantly, we have deep, mutually beneficial economic ties and business links."

"The Australia New Zealand Closer Economic Relations Agreement is possibly the world’s most comprehensive, effective and mutually compatible free trade deal. So it is a pleasure to take the opportunity to talk to Australian businesses and give you an update on the state of New Zealand's economy."

Dr Cullen then went on to explain that he would outline the impact of the main measures introduced in the recent budget, and introduce those attending the Forum to some new initiatives.

He explained that:

"The centrepieces of the budget are saving and investing," and revealed that: "The budget introduced the biggest changes to business tax law in twenty years, a very large-scale workplace retirement savings scheme called KiwiSaver, and the largest business tax reforms in twenty years."

Speaking with regard to the KiwiSaver initiative, the NZ Finance Minister observed that:

"When I look across here at Australia's robust economic performance and higher personal incomes, it is difficult to avoid a kind of fiscal envy towards the trillion dollars of funds under management through your compulsory superannuation scheme."

"New Zealand has had no similar scheme."

"We have seen the results in the somewhat frequent arrival of Australian private equity firms coming to New Zealand, recognising the skills and innovation in some of our iconic, fast-growing businesses ...and buying them up. I welcome the arrival of foreign capital, the technical expertise and marketing opportunities those sales bring. But I also wish it was not a one way journey and more New Zealand funds were participating in Australian businesses.To help make that happen, KiwiSaver is getting underway on 1 July."

"Everyone who saves four or eight per cent of their income will get a $1000 contribution from the government into their KiwiSaver accounts to get things started. Some will also get a $5000 subsidy to help buy their first home - $10,000 for a couple. KiwiSaver accounts will be operated by a variety of private sector fund managers. The beauty of KiwiSaver is that it deals with the inertia we face when confronted with the challenge of saving – we put it off. Automatic enrolment as workers start new jobs is designed to counter that. They have to make a conscious decision not to save and opt out. With 700,000 people changing jobs every year, I believe that will mechanism will make a real difference to saving decisions."

"The budget also considerably strengthens KiwiSaver by improving the incentives for people to save. The government will provide a tax credit to savers that matches their contributions up to $20 a week. Employers will in future have to match their employees' contribution. They will receive a tax credit to offset that by up to $20 a week. So effectively, savers will get up to $40 a week from the government towards their retirement savings."

"Because of the reimbursement, and assuming a 50 per cent take-up, the scheme will add around one percent extra to the national wage bill when it is fully in place from 2011. And that also assumes no wage trade-off."

He continued:

"The other very significant package in the budget this year was investing. It is the focus of the Business Tax Reform package."

"The package is aimed at raising productivity and improving competitiveness by providing incentives for our businesses to increase investment in innovation and to expand overseas. The headline corporate tax rate is being cut from 33 per cent to 30 per cent. The company tax rate cut alone will cost $2.1 billion over four years."

"The overall business tax package builds strongly on a $1.4 billion package of depreciation and other measures I announced three years ago in Budget 2004."

Dr Cullen went on to add:

"But we haven't stopped simply with the headline rate. We have invested strongly in measures to grow the sophistication and value of our exports, and to improve our export performance and international connections."

"Tax credits for research and development make it attractive to take a fresh look at locating your research and development in New Zealand. If you are investing in research and development you will be eligible for a tax credit of fifteen per cent."

"There is also fresh incentive to partner with kiwi companies in entering overseas markets together. We have changed our international tax regime to allow businesses with international operations to compete more effectively in foreign markets. Until now, kiwi companies were taxed on their worldwide income. Other countries distinguish between the active and passive income of controlled foreign companies. Income from manufacturing and income from investment is treated differently by tax law in those countries."

"We will join the international norm, and active income earned for example from manufacturing by New Zealand resident companies from their controlled foreign companies will be exempt from New Zealand tax. Only 'passive', or investment income, will be taxed."

He further suggested that:

"These measures complement our very liberal foreign direct investment regime. We want more foreign investment in New Zealand-based firms that can export to the world, in order to raise both our services and merchandise export receipts and underpin rising living standards and social services for all New Zealanders."

"Under our foreign investment rules, no business investment proposal has been denied under the business category since the early 1980s. I note that of all applications received since 1999 (across all investment categories), 97.1 per cent of applications have been approved."


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