Dunne signals personal tax cuts

Revenue Minister Peter Dunne has added further weight to widespread expectations the tax system on property investment is to be changed, and personal taxes are to be lowered.

Speaking to the International Fiscal Association conference in Christchurch today, Mr Dunne said changes to the tax treatment of property were likely, to make the rules fairer and more equitable for all taxpayers.

"This is not an attack on landlords, as some have protested, but a rebalancing act designed to address the concerns highlighted by both the Tax Working Group and the Governor of the Reserve Bank over the years about distortions favouring property investment over other forms of investment," Mr Dunne said.

"There are also likely to be lower personal taxes across the board -- not just for the top end of the income scale as some allege -- to encourage productivity, investment and saving." The proposal that GST be lifted to 15 percent, would only go ahead if appropriate compensation was provided for those who need it, while no exemptions for specific items would be introduced, Mr Dunne said.

The issue of the company tax rate and its relationship to the top personal tax rate and that of trusts was still being considered.

Despite the relatively recent reduction in the company tax rate from 33 percent to 30 percent, New Zealand's rate remained higher than many OECD countries.

"This does not necessarily mean that we need to drop the rate to match or outpace other countries," Mr Dunne said.

Recommendations from the Tax Working Group were still being reviewed by the Government and final decisions on the overall shape of any tax reforms would be announced in the budget on May 20.

Mr Dunne also announced today a new round of consultation on the reform of New Zealand's international tax rules.

He released an issues paper seeking feedback on suggested changes to the treatment of non-portfolio foreign investment funds.

"This consultation paper builds on the comprehensive reforms made last year to the taxation of New Zealand companies that have offshore subsidiaries so they can compete in world markets on the same basis as foreign competitors," Mr Dunne said.

"The main feature of those reforms was the introduction of an exemption from New Zealand tax on income earned through controlled foreign companies undertaking 'active' business activities such as manufacturing, distribution or sales functions.

"This issues paper continues the reform process by looking at ways to remove further taxation obstacles to New Zealand companies' international competitiveness," Mr Dunne said.

"In particular, it looks at how the tax exemption might be extended to some investment interests made by New Zealand companies in foreign companies -- known as foreign investment funds or FIFs -- in which they are not the controlling partner."