6 March 2004 Media Statement

Government tax policy programme to December 05

Policies to support growth and innovation, assist low to middle income families and maintain the revenue base were on the government’s tax policy work programme to December next year, Revenue Minister Michael Cullen told the International Fiscal Association conference today.

Dr Cullen reaffirmed the government’s determination to deal with the “vexed” question of the taxation of offshore portfolio investment as the current rules did not make a lot of sense and produced some perverse outcomes.

He acknowledged that the options set out in the officials paper issued late last year were “not perfect” and said he was open to suggestions from the private sector provided these continued to raise revenue and did not penalise investment in New Zealand.

“With your help, I think we can have a process to work through these issues,” he said.

The government would explore, at the suggestion of the savings industry, whether a version of the risk-free rate of return method could be developed to tax the investments of domestic savings entities as this had the potential to bring more consistency to the taxation of savings.

Because it was sensible to consider offshore and domestic investment together, this would mean delaying new rules for offshore investment.

“I am prepared to accept this delay on the basis that an interim solution is enacted to deal with the Australian unit trust issue as I am advised that a significant and growing amount of money is flowing into these structures.

“If officials can come up with an answer to plug this leak, the government will recommend it for enactment as soon as practicable.”

Dr Cullen said the government was keen to increase work-based retirement savings and had picked up the Periodic Report Group’s recommendation that a working group be established to design an appropriate savings product. The membership and terms of reference would be made public before this year’s budget.

A review of the tax depreciation rules was also a priority with an issues paper outlining possible improvements due out soon.

Legislation to give a tax holiday on overseas income to foreigners and expatriates who had been away ten years and were coming to New Zealand to work as employees would be postponed until later in the year while the government considered whether the proposal might be extended beyond employees.

“The government will also begin negotiations with Austria this year on a double tax agreement, conclude the agreement with South Africa and give legal effect in New Zealand to the agreements with Chile and the United Arab Emirates,” Dr Cullen said.

ENDS

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