Call for NZ to match Australia's corporate rate

Australia's planned corporate tax rate of 28 percent will have to be at least matched by New Zealand, otherwise investment will flow to Australia, Business New Zealand says.

A tax package announced in Australia yesterday included a 40 percent tax on big miners' profits, a rise in compulsory employer superannuation contributions to 12 percent from the current 9 percent by 2019, and a cut in the corporate tax rate to 28 percent.

"Australia's switch from 30 percent to 28 percent over four years is a relatively modest reduction, so matching it - or better - should be relatively achievable for us," Business New Zealand chief executive Phil O'Reilly said.

The New Zealand corporate rate is currently 30 percent. A decade ago Australia's company tax rate was 36 percent. It was 49 percent in the mid-1980s.

"Business in New Zealand will be expecting our government to make and communicate an early decision on when we will drop our company rate below 28 percent," he said.

It would be important to take account of all the major costs that businesses in both countries faced, Mr O'Reilly said.

Michael Barnett, head of the Auckland Chamber of Commerce, said that for New Zealand to be competitive with Australia long-term, the trans-Tasman tax system needed to be closely aligned.

The changes to the Australian tax system announced at the weekend put pressure on the Government's budget, due on May 20, to support business.

Council of Trade Unions economist Bill Rosenberg said the Australian move to increase compulsory superannuation contributions by employers to 12 percent would attract more New Zealand workers to Australia and boost funds for investment in its economy.

Rather than a knee-jerk "must match Australia" response, New Zealand needed to look deeper.

Mr Rosenberg said New Zealand had one of the lowest total corporate tax takes in the OECD. It has few corporate taxes other than company income tax, the ACC levy and local government rates.

According to a recent study by PricewaterhouseCoopers and the World Bank, Australia's current "total tax rate" for companies was 48 percent of profits while New Zealand's was 32.8 percent, he said.

The 2 percent cut in Australia's corporate tax rate was a minor factor if companies looked at the whole tax picture.

The Australians also rejected an increase in goods and services from its current 10 percent level, while New Zealand was considering an increase.