New Zealand Squeals While Australia Thunders

New Zealand Squeals While Australia Thunders

Statement made by Jan James, Chairperson,
AMCHAM’s Taxation Special Interest Group

Until recent times, New Zealand budgets were the vehicle for important policy announcements. Such is still the case in Australia, where last Tuesday the Australian Treasurer broadcast significant changes to Australia's international tax rules, in part intended to attract more foreign investors to Australia. Through its budget, the Australian Government has sent a strong signal that Australia wants and is confident it can attract international investment.

In striking contrast, and as if to stare down rather than capitalise on the media focus on the budget, Dr Cullen has again trundled out what now appears to be the Kiwi model of understated, timid budgetary squeaks which will not even register on the radar of foreign investors looking for new markets.

There is talk (well, a sentence) referring to the government's commitment to a strong economy with strong international links. But where are the measures to back that up and attract foreign investment?

There is vague talk of "bringing forward proposals" enabling venture capitalists to invest in New Zealand in accordance with what Dr Cullen himself describes as "normal international tax rules", so that New Zealand "does not lag behind" similar Australian initiatives. Given the Australian initiatives were announced 8 months ago, there is already a disturbing lag.

There is vaguer talk of considering measures to provide a temporary (how temporary?) exemption for migrants from tax on foreign income – a proposal first floated by the McLeod Tax Review nearly 2 years ago – but nothing is expected to be implemented before the 2004/05 tax year.

Other than that, there is nothing in Dr Cullen's speech apart from a reminder that an agreement was reached (some 3 months ago) with Australia on trans-Tasman imputation.

The Economic and Fiscal Update accompanying the budget speech does refer to (but only as a fiscal risk) the McLeod recommendations concerning the taxation of direct foreign investment, including reducing to 18% company tax rates for foreign investors. Even if there is a positive response to any of those recommendations, again no implementation is expected before the 2004/05 tax year, as if time is on our side.

Contrast Dr Cullen's budget with Australian initiatives to assist Australian companies investing abroad while encouraging them to remain Australian based, exempting dividends from off-shore subsidiaries to boost Australia's position as a regional holding company location and plans to update Australia's tax treaties.

The budget is an ideal opportunity to market and build New Zealand internationally – an opportunity which has been all but ignored in this round.

Jan James is a Tax Partner at Law Firm Simpson Grierson

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