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English coy on Budget business tax cuts

Thursday 22nd April 2010

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The government is working on a range of business tax issues, of which the corporate tax rate is only one, says Finance Minister Bill English in an early sign that any movement in the corporate tax rate may occur over a period of years rather than immediately.

Speaking to journalists after a pre-Budget speech to the Wellington Chamber of Commerce, English said business tax cuts were "not off the table".

"Whether Australia moves on corporate tax because that would have some competitive impacts on New Zealand, but that needs to be finalised - we're looking at a number of issues, not just the tax rate, around business taxation,” he said.

The Henry Review of the Australian tax system is unlikely to report back or be actioned prior to the Australian general election later this year. English suggested earlier this year that cutting the corporate tax rate ahead of Australia's would deliver New Zealand competitive advantage.

English was clearer than in the past that the tax package to be unveiled in the May 20 Budget would be broadly fiscally neutral - giving away and raising taxes in equal measure - but over an extended period of four or five years.

"Some tax changes you can make quickly, others take longer so that we have decided that rather than tie ourselves to absolute year to year neutrality, we want to get the package right and there's a bit of looseness in the fiscal impact, but over four or five years it'll be fiscally neutral."

Increases in tobacco and alcohol excises look almost inevitable during that period, with English noting the Maori Party's strong support for higher taxes on tobacco and the likelihood that the Law Commission would recommend higher excises on alcohol when it reports on the issue in coming months.

English continued to talk up New Zealand's unusual position as a developed country in which a fiscally neutral tax package could even be contemplated.

Apart from Australia, every other developed economy looked like it would have to raise taxes to cope with the government banking bail-outs of the global financial crisis - an impact that missed both New Zealand and Australia, whose banking systems had emerged strong from the crisis, he said.

He declined to add details of spending cuts, but said the biggest areas of pressure were health and education, where some reshuffling of current budgets was necessary to ensure value for money.

A "very small proportion" of those funds would be directed to the Whanau Ora pilot programme, details of which would be announced in early May, English said.

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