NZ will respond to any Australian tax changes, says English

Finance Minister Bill English says he will look closely at the outcome of Australia's tax review. Photo / Paul Estcourt

Finance Minister Bill English says the Government will look closely at its own tax system if Australia makes any significant cuts to personal or company taxes so it does not get "caught flat-footed".

Australia is currently doing a major review of its tax system, the goals for which include making it more internationally competitive and attractive to investors.

It is due to report back by the end of the year and at the Herald's Mood of the Boardroom meeting yesterday, Mr English said New Zealand would look closely at the outcome.

"My guess is that after the Australian election [in 2010], if only for competitive reasons, we'll need to think about the tax mix."

Mr English travels to Australia today and will meet Australian Treasurer Wayne Swan tomorrow.

He told the Herald any significant cuts to Australia's company or personal tax rates could impact on New Zealand's attractiveness to investors and workers. He said Australia's Government had not yet indicated what it expected to do - but New Zealand would respond quickly "if we had to".

"Under any circumstances we make our own policies. But we do have to be aware of any competitive advantage they could generate by changing their tax system. People and companies move between New Zealand and Australia easily and if they take any decisions that give them a competitive advantage on tax, we have to take account of that."

Asked if New Zealand could afford to move if Australia did, he said he expected any changes Australia made would be fiscally neutral and offset by increasing or introducing taxes elsewhere. "It would be the same here. You'd be looking at changing the tax mix rather than just cutting income tax rates."

In its first Budget this year, National was forced to defer its second and third tranches of personal tax cuts because of the economic downturn.

Yesterday, Mr English said other countries had moved to increase taxes, including the United Kingdom and United States - a fate New Zealand would avoid.

"If we can keep our public finances under control and focus on expenditure we will get through without putting tax rates up. Other countries are putting theirs up - it's an opportunity for New Zealand to drive home the initial advantage we have."

Mr English said the Government remained committed to its "medium term" goal of a 30 per cent top personal, company and trust tax rate - but "medium term" was now "longer than it was six months ago".

Prime Minister John Key will also discuss the transtasman relationship today, in a speech in which he will set out how the Government intends to increase productivity to reduce the gap in wages between New Zealand and Australia - which is approximately 30 per cent.

Mr English said his meeting with Mr Swan would cover Australia's economic outlook as well as Single Economic Market issues..