Budget 2005: Business tax regime tweaked

Changes to the business tax regime will cost the Government $1.4 billion over the next four years, half of which will be offset by the new carbon tax, Finance Minister Michael Cullen said today.

Dr Cullen's sixth budget today took the wraps off long-heralded changes to the depreciation regime that will cost the Government just under $1 billion in revenue between 2005-2006 and 2008-2009.

The changes will allow businesses to speed tax depreciation rates for short-lived equipment such as computers and slow down the rates for long-term capital such as buildings.

The cost to the Government will be offset by the carbon tax, which is expected to generate $720 million between 2006 and 2009 through increased levies on petrol and electricity.

Also in the budget package were changes to investment taxation rules to encourage saving and temporary tax breaks on the foreign income of new migrants to encourage "top talent".

These changes come on top of previously announced reductions in fringe benefit tax and removing some barriers to research and development investment.

All the changes would cost the Government $229 million in 2005-2006 rising to $239 million in 2006-2007 before the majority of the carbon taxes kick in, Dr Cullen said.

By 2008-2009 the Government expects to be earning $319 million from the carbon tax meaning this year's budget business package will only have a net cost of $96.4 million by 2008-2009.

Dr Cullen said the total cost of the Government (excluding the gains from the carbon tax) would be $1.42 billion.

"This is equivalent to a cut of around 2 per cent in the corporate tax rate. It will deliver a better growth dividend, because the Government measures are designed to raise productivity and support the transition to a knowledge-based economy," Dr Cullen said.

Details of the package revealed today include:

* Ensuring portfolio investment by financial intermediaries such as collective funds, is not overtaxed relative to direct investments;

* Ensuring income from a collective fund is taxed at the individual's tax rate by removing the anomaly where people earning less than $38,000 are taxed more on savings than income;

* Temporary tax exemption on the foreign income of new migrants and New Zealanders who have been non-resident for tax purposes for at least 10 years and who come back to work;

* Aligning tax rules on securities lending with those of other countries;

* Changing depreciation rules so that rates reflect assets decline in value and to reduce compliance costs.

- NZPA