Govt still pondering company tax cuts

Finance Minister Bill English says cutting company tax rates is still an option. Photo / Daily Post

Aligning the top personal, trust and company tax rates is still on the table, though a need to reduce the company rate even further might not make that possible, Finance Minister Bill English said today.

The Government is considering raising GST and closing property tax deductions to fund tax cuts across the board in this May's budget.

Today in notes for a speech to be delivered in Auckland, English gave more indications about his thinking on the subject, telling a business audience that a key issue was working out whether the company rate should drop below the current 30 per cent.

"We are still considering this issue - mindful that our company tax rate needs to be competitive internationally," English said.

Aligning the company, trust and top personal rates remained the Government's medium-term goal. But it was considering whether it was affordable and whether it fitted with other equity considerations.

"Our early advice is that aligning the trust and top personal tax rates is the most important issue, because they are both final taxes. By contrast, company tax is an interim payment until a taxpayer's own personal tax rate applies."

English said complete tax rate alignment may not be necessary to eliminate many of the integrity problems with the current tax system.

"For example, substantial gains could be made by aligning the top personal rate with the trust rate, and having a company tax rate not too far below this. Second, complete alignment may not be sustainable over time," English said.

"Around the world, company tax rates are generally falling and, at 30 per cent, New Zealand's company tax rate is on the high side compared with many other developed countries. Remaining competitive with other countries may be more important than alignment - if not now, then at some point in the future."

It was important that New Zealand's company rate did not move too far out of line with Australia.

"Currently, they are both at 30 per cent, but Australia is reviewing its own tax system and may consider dropping its company rate. We will watch events across the Tasman with a great deal of interest."

English also confirmed the Government would retain the imputation system for taxing company dividends in its tax reform package later this year.

"The Government agrees with both the Tax Working Group and the Capital Markets Development Taskforce that the current imputation system is worthwhile. Therefore, it will be retained. Both New Zealand and Australia have this system and imputation plays an important role in our overall tax system."

- NZPA