Cullen unlikely to change Australian 'grey list' tax regime

Finance Minister Michael Cullen today gave his strongest indication yet that there will be no change to current tax rules allowing favourable treatment of investments across the Tasman.

"We are almost certain to move to a position where we will treat investments in Australia from New Zealanders as if they are investments within New Zealand," Dr Cullen told National Radio.

The result would be a taxation regime "fully consistent with a single economic market for tax purposes", he said.

Dr Cullen's comments came as he headed to Melbourne today to meet with his Australian counterpart, Treasurer Peter Costello, for an annual discussion about strengthening economic ties.

While changes to the imputation tax regime wouldn't be on the agenda today, the meeting aimed to touch on issues that would likely arise in future, Dr Cullen said.

Tax on offshore investments is a thorny issue at present.

Earlier this month, Dr Cullen and National's finance spokesman, John Key, traded blows over plans to tax offshore portfolio investments.

Mr Key accused Dr Cullen of an "embarrassing backdown" on his proposal to tax the capital gains made by New Zealanders investing in shares offshore.

Dr Cullen responded by saying Mr Key was again showing his "true colours as a friend of wealthy investors".

The Government is currently reviewing a proposal to remove the so-called "grey list", which allows for concessionary tax treatment of investments in seven countries.

The aim is to encourage investment in New Zealand, rather than offshore.

The decision to allow favourable treatment of Australian investments would effectively create a "grey list of one", Dr Cullen said today.

A discussion document on taxing offshore investment was released in June last year, attracting about 900 submissions.

Business groups and tax experts warned the changes would have a negative effect on the New Zealand economy, further fuelling New Zealanders' tendency to invest in housing.

The Government was currently consulting on a modified proposal for offshore investment that took into account the concerns of submitters. It was expected to announce new proposals in March.

A tax bill with the changes was expected to be introduced in May, with application from April 1, 2007.

- NZPA