TaxBlog

Budget 2006/2007 is only a matter of weeks away. What will be in the budget concerning taxes is anyones guess. More of the same is likley. One thing is for sure though, Cullen will be doing his sums twice before rolling out a ‘chewing gum’ tax releif package. I wonder if Cullen actually realised last year what he was agreeing to. Surely some junior in a government office came up with the idea, and wrote it in.

That annoucement caused the Labour government some seriously negative press… And prompted calls to reduce the company tax rate to 30%. Interesting that Cullen is still thinking about such a move, at the expense of introducing a payroll tax.

So whatever happened to the payroll tax?

Probably someone in treasury is crunching the numbers working out the revenue implications of trading a 3% drop in corporate income tax for the introduction of a payroll tax.

Anyway, Cullen gave the following marketing speil re: progress on his 2005/2006 budget:

… In Budget 2005 we changed the tax treatment of R and D, increased depreciation rates for shorter lived assets, and lifted the tax allowance for expensing lower cost assets.

The business taxation review that Peter Dunne and I are undertaking will also be looking to provide a further boost in that respect.

To sum up, I make no apologies for the fact that Budget 2006 will offer more of the same. More of the same fiscal prudence. More of the same steady management of the economy. More of the same engagement with the long term drivers that will move our economy forward and strengthen our communities and families and our sense of national identity.

Lets be fair some of the improvements Cullen has introduced are a step forward. R and D, increased depreciation rates and the lifting of the tax allowance for expensing lower cost assets are all positive moves. So credit to you for those moves Dr. Cullen.

Things to look out for in budget 07:

• Payroll tax – Is it happening or not?
• Corporate tax cuts – Company tax decreased to 30%
• Introduction of more revuenue raising activites?
• Increases in government spending?

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Scoop has an excellent article written by Roger Kerr about the proposed payroll tax.

Kerr covers off the history of the payroll tax in New Zealand and discusses potential alternatives.
Some of his key points:

“A payroll tax was introduced by the Muldoon government in the 1970s but was controversial and quickly abandoned.

The comprehensive McLeod review of the New Zealand tax system in 2001 did not see merit in a payroll tax.”

A key problem with the payroll tax is that major practical problems arise from the self-employed and investors in closely held companies being able to characterise labour income as income from capital (interest or dividends) if it bears a lower rate of tax.

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