National tax policy – step in the right direction

National tax policy – step in the right direction

The announcement by National Party Leader Don Brash to significantly restructure the tax system is a step in the right direction.

KPMG has, for a number of years undertaken a global Corporate Tax Rate Survey and has pointed out to the New Zealand government that New Zealand was falling behind the international trend of decreasing corporate tax rates. Of particular note was the reduction in the Australian corporate rate to 30%

The National policy is about “keeping up with the Howards” said Brahma Sharma head of KPMG’s tax practice. To maintain our attractiveness for investment, New Zealand’s company tax rate needs to match, or preferably better Australia’s. National’s proposal, finally suggests the required catch up. This is a step in the right direction although it would be better if the rate was lower and the implementation was earlier.” he said. “The benefit of a lower company tax rate should encourage greater re-investment of profits by New Zealand companies. “

The period prior to the last budget saw intense speculation of a Costello-like move on the individual thresholds by the current Government. Instead there was a proposal to move the thresholds in line with inflation in three years’ time.

National’s tax cuts for individuals however picks up the Australian lead. “This approach ensures that all taxpayers benefit under this policy” says Mr Sharma. KPMG has calculated the cross-over income, where the total tax payable in Australia equals the total tax payable in New Zealand. The current cross-over level is $78,931. After that level, New Zealand tax is less. The Australian changes would move the level to $128,623 when fully implemented, under the Budget proposals this would reduce to $116,755. The National proposal would move this to $38,144. These calculations are for a single person with no other entitlements. The individual threshold proposals would make New Zealand more attractive at the headline tax rate level.

The withholding tax rate changes for second jobs should simply change the time at which tax is paid. Under the current rules, an incorrect withholding tax rate (ie one lower than the rate on a person’s marginal rate) means the taxpayer has to file a tax return. The proposed rate changes will be beneficial for those within the new thresholds; for those on higher rates there will be no overall benefit.

In addition National will not introduce Labour’s planned carbon tax. The removal of the carbon tax should lower the cost of energy to consumers. For businesses, which have been promised tax changes to be funded by the carbon tax, the National Party policy holds out the positive possibility there will be no carbon tax but the income tax changes will proceed.

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