Dunne dismisses Key's tax ideas

Peter Dunne

Most of National finance spokesman John Key's proposals for business tax reform were either already under way or were less attractive than what was suggested in the Government's business tax review, Revenue Minister Peter Dunne said yesterday.

Dunne was responding to proposals put forward by Key at the Herald Mood of the Boardroom launch on Tuesday.

"He has the gall to describe the review as timid and then propose as visionary measures that are a pale imitation of what is already under way," Dunne said.

On Tuesday, Key outlined 10 measures he said should have been in the review.

Among them was a review of the non-resident withholding tax rates on dividends, interest and royalties. Australia has been cutting its rates, in some cases to zero, making it a more desirable destination for foreign investment.

Key also called for a review of the controlled foreign company regime governing the taxation of the foreign offshoots of New Zealand companies.

Under the present rules, New Zealand companies are taxed on their worldwide income, with a credit for foreign tax paid. They pay 33c in the dollar regardless of the local rate, disadvan-taging them in foreign markets.

There is an exemption for investment into eight "grey list' countries, but it includes only one Asian nation, Japan.

Dunne said a review of the international tax rules was under way and a discussion document would be released before the end of the year.

Key had called for a 100 per cent write-off for research and development.

But the business tax review discussion document proposed a scheme equivalent to a write-off of between 121 and 145 per cent, but delivered more usefully as a tax credit, Dunne said.

"New businesses may be putting everything into research and development with no money coming in the door for the first few years, so they would not be able to make use of a tax deduction for their R&D expenditure."

Key also suggested an extension of the exemption on the foreign income of new migrants and returning New Zealanders. The latter qualify only if they have been away for 10 years.

That was too long, said Key, who is a returned expatriate. If people had not returned by then, they were probably not going to.

Dunne said: "When this policy was introduced in April, I made it clear that we would look at extending this exemption if circumstances warranted."

Key called for a renewed effort to obtain mutual recognition of imputation and franking credits between New Zealand and Australia. That would avoid the double taxation of equity investment in the other country.

"He should know that the obstacle here is the objection of the Australian Government to the absence of a comprehensive capital gains tax in New Zealand," Dunne said. "Presumably he is not advocating we move in that direction?"

Finance Minister Michael Cullen's account of Canberra's objection is different. He attributes it to the fact that Australia has much more investment abroad than New Zealand, and therefore more to lose fiscally if it had to match any such concession to New Zealand with similar relief to other countries, under the most favoured nation provisions of their double tax treaties.