Higher pay Australia's drawcard for Kiwis

If there's one thing political opponents agree on, it's that people don't leave for Australia because of tax.

Maybe the weather. Certainly wages.

As the parties debate tax policies and stemming the brain drain, the fact is that the main draw across the Tasman is that wages are 30 per cent higher than New Zealand's without adjusting for the currency, cost of living or tax.

National leader Don Brash was asked about the brain drain - which numbered a net 19,900 in the year to July - when releasing his $3.9 billion tax cut package on Monday.

He said tax cuts were only one factor in stemming the tide, but a useful one. Economists also say New Zealand must not have a tax system that disadvantages it in the global marketplace for skilled labour.

National wants to tax personal incomes up to $12,500 at 15 per cent, incomes between $12,500 and $50,000 at 19 per cent, incomes between $50,000 and $100,000 at 33 per cent and incomes above that at 39 per cent.

It would also cut the company tax rate to 30 per cent to match Australia's in April 2008, or earlier if "fiscal circumstances permit".

Dr Brash says the package will bring average personal tax rates down to well below Australia's and keep New Zealand competitive by reducing the company rate.

National has hammered the message that New Zealand suffers from high tax rates.

But Finance Minister Michael Cullen rubbishes such claims and points out the dangers of tax comparisons with Australia, saying they are "fraught".

He told the Herald the aim of the Australian tax cuts announced in the 2005 Budget which take effect in the 2005-06 tax year was to get at least 80 per cent of the population on tax rates of 30 per cent or lower. But in New Zealand, about 75 per cent of taxpayers were already on 21 per cent or lower.

He says Australian taxpayers at the top end pay significantly higher taxes, with two higher tax scales than New Zealand: 42 and 47 per cent. Australians also pay stamp duties, a capital gains tax on housing, medicare levies, payroll taxes and state taxes.

Even if they agree on little else in this campaign, Dr Cullen and National's finance spokesman, John Key, do believe the main reason people cross the Tasman is for better incomes. They also agree the way to address that is higher productivity per worker.

Mr Key admits there's only so much tax cuts can do to stop the brain drain and close the income gap.

PricewaterhouseCoopers tax partner John Shewan, who is New Zealand chairman of the company, says tax is far less important for individuals than wages in deciding to move.

"It's one of a number of variables and probably the weather has as much effect as taxes, frankly. Obviously the wage environment is better in Australia."

But Mr Shewan believes it is critical the company rate matches Australia's, and he is disappointed National is not planning to do that until 2008.

Council of Trade Unions economist Peter Conway also agrees that wages, not lower taxes, attract people to cross the Ditch. He says a recent OECD report, "Taxing Wages", showed tax on the average wage in New Zealand was 20.6 per cent, compared with 24.3 per cent in Australia.

He blames lower capital investment by firms for New Zealand's pay rates and labour productivity falling behind.

Mr Conway says the gap started with National's workplace law reform, the Employment Contracts Act, which pushed wages down and encouraged businesses to hire cheap labour rather than to invest.

"There doesn't seem to be much point in giving huge tax cuts and in the process undermining the ability of the Government to invest in infrastructure, industry training, tertiary education - all the things that underpin a productive economy."

Getting that productivity up will be a focus if Labour wins a third term, Labour Minister Paul Swain told a Business NZ forum this week.

National's focus if it wins will be to cut taxes as it believes that will give people a greater incentive to work.

But considering net migration with Australia was last in our favour briefly in 1990-91, Kiwis seem likely to continue to take flight.