27 January 2000

Work under way to minimise tax avoidance

The Government will introduce a range of measures this year to minimise tax avoidance and to buttress the new 39 cent tax rate on incomes above $60,000, Finance and Revenue Minister Michael Cullen says.

"Our main focus is on preventing the inappropriate diversion of income through the use of companies and trusts.

"We are drawing on overseas experience. New Zealand was unusual in having the top personal tax rate set at the same rate as the corporate rate. I am not aware of any overseas country in which the top individual tax rate is the same as the company rate," Dr Cullen said.

"Overseas anti-avoidance rules provide useful precedents.

"I am confident the tax, to come into force on April 1, will raise more than the $400 million a year the Inland Revenue Department initially estimated would be available for new spending," Dr Cullen said.

The IRD expects the tax to raise $465 million in the next financial year [2000-01], $555 million in 2001-02 and $590 million in 2002-03.

On current tax laws, the IRD would expect $40 to $50 million to be lost in year one through tax minimisation arrangements rising to between $80 and $100 million in the following two years.

"However that is on current law. It does not take into account the initiatives the Government is planning to close tax loopholes.

"I would strongly advise people to wait and see what these new provisions are before paying for expensive advice from their accountants. They may find that it is a false economy and that they are wasting their money .

"The income groups the new tax will affect have done well out of the economic reforms of the past decade. We do not feel it unreasonable to ask them to contribute a little more to advance the common good," Dr Cullen said.

Fringe Benefit Tax will increase from 49 percent to 64 percent on April 1 in line with the new 39 cent income tax rate. IRD calculates this would generate a further $70 million a year in FBT.

"However the Government plans to introduce a bill, probably in March, to lower the tax on fringe benefits for workers earning less than $60,000.

"The anti-avoidance legislation may take a little longer to prepare but I hope to have it ready for introduction to the House by mid-year," Dr Cullen said.

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