Tax Policy Work Programme focused on international competitiveness, retaining revenue

The Government's new tax policy work programme will focus on better positioning New Zealand in the world economy and maintaining tax revenue during the current global economic crisis, Finance Minister Bill English and Revenue Minister Peter Dunne said today.

The Ministers said good tax design had an important role to play in improving New Zealand's international competitiveness and reducing business compliance costs.

"This Government is committed to a tax system that rewards effort, provides better incentives to get ahead and allows our businesses to thrive, both at home and on the world stage," Mr English and Mr Dunne said.

Mr Dunne, who released details of the work programme in a speech today to the International Fiscal Association in Christchurch today, said the continuing reform of New Zealand's international tax rules, to better align them with other countries, was high on the agenda.

"A primary emphasis of the work programme over the next 18 months is on tax policy that will help New Zealand to be more competitive in world markets, while ensuring the necessary revenue flow is not disrupted. This aims to free New Zealand-based businesses from a tax cost their overseas competitors do not face," the ministers said.

An international taxation bill, currently before Parliament, will make changes in this area. The next step will be considering extending the exemption of active income arising from the offshore operation of New Zealand-based businesses to non-portfolio investment funds, branches of New Zealand companies, and financial institutions.

Tax developments in other countries will also flow into the work programme.

"We must keep an eye on international influences such as Australia's current comprehensive review of its tax system, which is expected to be completed by the end of the year. We will also be watching downward trends in company tax rates in other countries and looking at any implications for New Zealand," Mr Dunne said.

The work programme will also follow developments emerging from forums such as last month's Job Summit and the Capital Market Development Taskforce. 

Job Summit ideas include widening the tax deductions regime to include ‘black hole' expenditure - which is currently not covered - on capital raising and new projects and an exemption from approved issuer levy and non-resident withholding tax for widely issued bonds held by non-residents.

Mr Dunne said the work programme also gave high priority to the development of a policy on income splitting for tax purposes. As part of its confidence and supply agreement with United Future the Government has agreed to support income splitting legislation through its first reading in Parliament.

Aligning the personal, company and trustee tax at a minimum of 30 percent is also a medium-term priority of the work programme, but Mr Dunne said that would depend on the country's economic and fiscal position.