Tuesday 6th December 2011 2 Comments
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The final death knell for the New Zealand Stock Market could come next year if a radical proposal is adopted in Australia that would see most companies pay no tax.
The Treasurer, Wayne Swan, is said to have set up a nine-person working group to consider a proposal known as “Allowance for Corporate Equity”.
This would mean no tax would be levied to the portion of corporate profits necessary to get a ‘reasonable’ (but so far undefined) return on equity.
Most companies – especially manufacturers – are likely to fail to meet that hurdle and therefore would pay no corporate tax.
Banks and mining companies make a much greater return on equity and so would be liable for a ‘super tax’ on the excess portion of their earnings.
If a company with a lowish return on equity could pay no tax in Australia, then they would be duty bound to move over there.
The NZX finds it hard enough to persuade companies to come on to the market and stay there and a wholesale flight across could the Tasman could be very damaging.
Potentially, the New Zealand government would have to match the Australian plan to avoid an exodus but we will have to wait and see.
The tax change may not be implemented in Australia but there appears to be widespread support for it, including from the unions.
Also, by putting the tax burden on the banks and resource companies, which can’t move offshore, the Australian government makes it less likely that more nimble companies would do just that.
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