Tax Rates: Must Try Harder

ACT New Zealand Finance Spokesman Sir Roger Douglas today questioned why the Government had not moved to align the top personal tax rate, the corporate tax rate, and the trustee tax rate.

On February 18, 2010 Finance Minister Bill English reconfirmed the statement from the National–ACT Confidence & Supply Agreement that ‘the Government’s medium-term goal remains to align and reduce the top rate of personal tax, trust, and company tax rates at a maximum rate of 30 percent.’ Revenue Minister Peter Dunne also stated on September 25 2009 that ‘the Government is committed to moving to an alignment of top personal tax rates, company rates and trustee rates at 30 percent.’

"The Government has gone back on its promise, instead keeping differential rates. From April 1 2011 we will have a PIE and corporate income tax rate of 28 percent, and from October 1 2010 we will have a top personal income tax rate of 33 percent. If we do not align, then we merely encourage tax planning. The Government seems intent on increasing profits for the lawyers and accountants who devise complex tax schemes," Sir Roger said.

"Moreover, the rate of progressivity of the tax scale, although slightly lower, will still incentivise income splitting for those who operate trusts and corporations. We must flatten the tax scale in order to stop this economically wasteful practice.

"While I am pleased to see tax rates on income reduced – which will have a positive effect on incentives to gain skills, work ahead, and seek better jobs – the structure of the tax system should be improved to stop avoidance behaviour. This has been a missed opportunity," Sir Roger said.