Aligning the top personal, trust and company tax rates may not be possible, Finance Minister Bill English told an Auckland business audience this afternoon.
The National-led government has a formal policy of aligning those rates. However, international competitiveness issues means it might have to drop the company tax rate lower than personal or trust tax rates – but dropping those other rates in line with the company tax rate may not be competitive.
Mr English said company tax is an “interim tax” until the rate is adjusted for a shareholder’s personal tax rate.
“Alignment of the company rate, the top personal rate and the trustee rate is, in theory, the best arrangement. This therefore remains the government’s medium-term goal,” Mr English said.
“However, the government is considering whether that is affordable and whether it fits with other equity considerations. Our early advice is that aligning the trust and top personal tax rates is the most important issue, because they are both final taxes.”
Total alignment may not be necessary to eliminate many of the integrity problems with the current system, he said.
“Substantial gains could be made by aligning the top personal tax rate and the trustee tax rate, which are both final taxes, and having a company tax rate not too far below this.”
The government has decided to retain the imputation system, he said, but the questions remains what the company tax rate - at present 30% - should be and how it should relate to the top personal tax rate and the trust rate.
“We are still considering this issue – mindful that our company tax rate needs to be competitive internationally… New Zealand’s company tax rate is on the high side compared with many other developed countries.
“Remaining competitive with other countries may be more important than alignment – if not now, then at some point in the future.”
Thu, 18 Feb 2010