Richard Inder: Tax housekeeping rather than performance lift

Finance Minister Michael Cullen billed this Budget as one that would facilitate saving, increase access to skills and capital worldwide, and boost capital productivity.

It is no wonder business, with the exception of the financial services industry, is feeling a little non-plussed.

The headline tax numbers sound great. Tax cuts worth $1.4 billion by 2009, that will more than offset the $720 million the Government expects to raise with the carbon tax.

The bulk of these cuts, $977 million over the forecast period, come in the form of new rules on depreciation that allow companies to write off the cost of shortlived assets such as computers.

However, these cuts do not change the amount of tax paid, they just front-load the deduction, so they pay less tax in the early years of use.

There is also a sting in the tail: depreciation on buildings is reduced, bad news for property investors.

Other measures such as the tinkering with fringe benefit tax, aligning provisional tax and GST payment dates and new investment in workplace training seem more like tax housekeeping than the sort of changes that will lift the performance of the economy.

The one bright note in the Budget is the new rules on investment designed to encourage savings.

Actively managed funds will no longer pay tax on gains made from the sale of New Zealand shares, removing an anomaly that gave an advantage to private traders.

Measures such as these are sorely needed. New Zealanders spend far too much. Our household savings rate is the lowest in the developed world, while our current account deficit, representing our annual call on foreign capital, is now more than 6 per cent of GDP.

The move will return to investors in the New Zealand sharemarket $100 million a year.

However, the NZX will not be jumping for joy. Its passive funds were structured to take advantage of these anomalies.

* Richard Inder is editor of the Business Herald.