KEY POINTS:
Tax will be high on the agenda when Australian Treasurer Peter Costello and Finance Minister Michael Cullen hold their annual talks in Wellington today.
Though the vexed issue of mutual recognition of imputation or franking credits is likely to be in the too hard pile, there has been movement in the related area of non-resident withholding tax (NRWT) on dividends.
The international tax review discussion document which the Government released last month raised the possibility of lowering NRWT limits in New Zealand's double tax treaties including that with Australia.
They are looking increasingly stranded by a tide running towards lower rates in tax treaties.
Australia's treaty with the United States, for example, has a 5 per cent rate for dividends on holding above 10 per cent of a company and zero when the holding is over 80 per cent. The comparable New Zealand rates are 15 per cent.
Cullen's dilemma, given New Zealand's reliance on imported capital, is that without NRWT all the tax on dividends (and interest and royalties) sourced here would go to the country where the investor was resident.
On the other hand foreign investors are likely to respond to New Zealand taxes by demanding higher pretax returns, bouncing the tax burden back onto the New Zealand economy.
After the ministers' meeting last year it was clear Australia was open to a renegotiation of the double tax agreement but New Zealand needed to progress its broader international tax review first, including the controlled foreign companies regime. That process is now in the public consultation phase.
Cullen is also expected to brief Costello on progress in the business tax review, including the increasingly firm prospect of lower company tax rates, which is likely to feature in this year's Budget.
Climate change, too, is on the agenda and much of the discussion is likely to relate to emissions trading.
The Government and the National Party favour cap-and-trade mechanisms for introducing a price on greenhouse gas emissions into the decisions energy users, large and small, make. But the design of a trading system is still at a rudimentary stage.
Last month Prime Minster John Howard set up a joint government/business task group to advise on the design of a workable global emissions trading system in which Australia would be able to take part, and what steps could be taken within Australia consistent with the goal of establishing such a system.
Canberra is still refusing, though, to participate in a process the state and territory governments have been running for some time, to design a nationwide emissions trading scheme for the electricity and heavy industry sectors.
Progress in implementing last year's memorandum of understanding on business law co-ordination will be reviewed.
It covers such things as the cross-recognition of companies, cross-border insolvency, intellectual property and competition law.
Trade and other regional economic issues such as the commodities boom will also be discussed.
Australia hosts the Apec summit this year, and with the World Trade Organisation's Doha Round floundering, possible regional trade pacts such as a free- trade area of the Asia-Pacific are gaining more traction.
