Tax base of govt companies likely to slump dramatically

By Rob Hosking

Friday 28th September 2001

The government's company tax base is likely to slump dramatically over the next few years unless there are major policy changes, tax expert John Shewan says.

The government takes in about $4.5 billion in company tax each year.

"Companies are under increasing pressure to pay tax outside New Zealand if they can," Mr Shewan, a senior partner with PriceWaterhouseCoopers, told The National Business Review yesterday.

Partly this was due to the 33% company tax rate - now the highest in the Asian Pacific region, he said.

Roughly 40% of the company tax take is attributable to the financial services sector - banks, insurance companies, and savings and superannuation houses.

The next largest sector, in terms of tax paid, is manufacturing, but this is well down at 18%.

Not only is much of that sector owned offshore, but it is also increasingly tending to invest offshore, due to a poor performing sharemarket and the pressure the New Zealand currency has been under for more than a year, Mr Shewan said.

"Second, that sector is the one impacted most dramatically by technology, and because of that it now undertakes a lot of its activities - such as treasury functions and the like - offshore.

"And because the sector pays 40% of the company tax take it is going to have an impact of some magnitude on the government accounts."

A third factor is other industries are also transferring functions offshore - again, a technology and tax driven move.

There has been a higher than expected company tax take in the most recent financial year, but Mr Shewan said this is driven mostly by the government's imposition of a 39% top personal tax rate on incomes over $60,000.

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