The New Zealand government is still pushing for a shared trans-Tasman tax scheme recognising imputation credits on dividends, which it says is the single biggest step to a closer economic relationship, but is willing to give Australia time to bring it in.
In a submission to Australian Prime Minister Tony Abbott’s white paper on tax reform, the New Zealand government resumed its push to introduce mutual recognition of the credits, removing the double-tax investors currently face on their cash distributions from holdings across the Tasman. At a minimum, New Zealand wants Australia to commit in principle to implementing mutual recognition when it has the fiscal headroom to do so.
“In a period where fiscal consolidation may trump wider economy-wide benefits from tax reform, we understand the tax revenue loss may influence decision-making about the timing for implementation of mutual recognition,” the New Zealand government submission said. “If Australia is not able to move now to mutual recognition, we seek at least an in-principle decision to implement mutual recognition when fiscal circumstances permit, with CER (closer economic relations) Ministers reviewing the situation at their annual meeting.”
A 2012 joint review by the two nations’ Productivity Commissions on further linking the neighbouring economies recommended settling the tax credit issue, estimating a shift would deliver economic growth of up to US$300 million a year. That would come at a fiscal cost to the Australian government of A$1 billion in forgone annual revenue, and $220 million for New Zealand.
Australian Treasurer Joe Hockey last month unveiled the Federal government’s 2015 budget, projecting an underlying cash deficit for the current financial year of A$35.1 billion, shrinking to a A$6.9 billion shortfall the following year. Australia is forecast to return to surplus in the 2019/20 financial year.
The New Zealand government estimates mutual recognition of imputation credits would lift post-tax dividends for investors by almost 39 percent. Australian investors’ effective tax rate on dividends in New Zealand companies is 60.4 percent, while New Zealand investors face a tax rate of 53 percent.
“We believe there is scope for Australian and New Zealand officials to consider practical design issues that seek to minimise Australian losses and maximise Australian gains,” the New Zealand government said in its submission. “These could include options such as phasing-in mutual recognition. We would welcome further opportunity to discuss these options with Australia.”