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Businesses over-egg the power of corporate tax cuts

Businesses over-egg the power of corporate tax cuts, says English

By Pattrick Smellie

May 29 (BusinessDesk) - Cutting New Zealand's 28 percent corporate tax rate is "not a panacea in the way business groups sometimes market it," says Prime Minister Bill English.

Responding to criticisms from the business community that the Budget had ignored the trend in other developed economies for lower corporate tax rates, English said New Zealand's was an unusually "comprehensive, fair" tax system.

Not only did the New Zealand tax system not double-tax company earnings, because of the imputation credits system, taxpayers in many other OECD countries paid far higher rates of personal income tax on their dividends than New Zealanders, where the top tax rate is 33 percent.

"They might pay a lower intermediate tax rate in the company but once the money comes out of the company they pay a much higher personal tax rate."

Cutting the New Zealand company tax rate was also more valuable to foreign owners than to New Zealand shareholders.

"A lower company tax is ... most beneficial to foreign owners because they just get a straight cut whereas in New Zealand it just reduces their intermediate tax rate," he said. "You need a pretty high threshold to show there's going to be equity benefits for it."

He was not ruling out a move on the corporate tax rate, saying it "can have benefits in an economy like this, which is basically cooperatives and small businesses where retained earnings matter as a source of investment more than publicly raised capital".

"The point I'm making is those are fairly involved, complex discussions," said English, who would not be drawn on whether the issue might be covered in the National Party's election manifesto.

"You'll have to wait and see for a manifesto," he said.

(BusinessDesk)

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