The surprise announcement that New Zealand's company tax rate would fall from 30% to 28% from April 1 next year was generally welcomed by the business community.
"New Zealand's company tax rate is high compared to most other developed countries, which affects our international competitiveness. A lower rate will help companies which retain and reinvest earnings."
The Government would allow dividends issued after the new company rate took effect to be imputed at the existing 30% rate for two years if company tax had been paid at the 30% rate, he said.
The move by Mr English puts New Zealand's company tax cut ahead of Australia, which just announced plans to lower its company tax rate to 28% but phased in over three years from 2012-13.
The company tax reduction would cost $20 million in the 2011 financial year, rising to $340 million in 2012, before falling to $305 million in 2014.
Mr English said the reduction was part of a package of measures to widen the business tax base while lowering overall rates.
"Company tax is not a final tax for New Zealand shareholders. New Zealand shareholders are ultimately taxed at personal income tax rates, which have all been reduced as part of the tax package."
Otago-Southland Employers Association chief executive John Scandrett said achieving 28% company tax rate two years earlier than Australia would be a boost for competitiveness.
He was heartened by indications Mr English might consider further tax reductions in the future.
"We didn't want a flash-in-the-pan, bringing the company tax forward as a one-off. We needed to see a long-term strategy."
