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Tax breaks in AUS for infrastructure investment, why not us?

Monday, July 11, 2011

Tax breaks in Australia for infrastructure investment, why not here?

Political and economic commentators alike typically analyse and contrast the Australian and New Zealand budgets. In respect of the recent 2011 budgets of both countries, one area that appears to have gone unnoticed is in incentives for private infrastructure investment. This raises the question, why is New Zealand not doing something similar?

The Australian Government budget proposes two specific breaks. Firstly, the removal of a shareholder continuity test currently required to carry forward losses and secondly, an index based on the government bond rate to inflation-proof losses.

How do the Australian tax breaks work in practice?

Infrastructure projects often take many years to complete. This creates two issues in respect of tax losses. Firstly, shareholding changes are more likely to occur over a longer period creating a greater risk of losses being forfeited. Secondly, inflation becomes a factor and will cause losses to lose their effective value.

Australia’s proposed tax breaks overcome both of these disadvantages, and beg the question why New Zealand is not following Australia’s initiative?

New Zealand does not currently provide any additional relief for taxpayers considering investing in New Zealand infrastructure. This raises the question, would an investor be more attracted to investing in Australia given the recent tax changes? Such an incentive would certainly be attractive.

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Staples Rodway Auckland Tax Director Andrew Dickeson says that the tax incentives would help encourage private sector investment in infrastructure at a low cost to the Government.

“The Government clearly has restrictions in respect of the ability to spend large sums of money on infrastructure. Encouraging the private sector to invest into this area via tax breaks created a natural win-win,” says Mr Dickeson.

“Private sector investment in infrastructure is important because it encourages continuous capital investment and this helps encourage the New Zealand economy to be more self-sufficient and independent in the long-term.”

“Tweaking our tax rules is one way to easily achieve this,” says Mr Dickeson.

ENDS

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