Trans-Tasman economy needs tax fix

A report by leading economic firms shows changes to tax laws in New Zealand and Australia could benefit the economies of both countries by billions of dollars.

Currently, companies based in either Australia or New Zealand with operations in the other country has their profits taxed twice, because neither country recognises the other’s system for offsetting tax credits.

The New Zealand Institute of Economic Research (NZIER) Inc and the Centre for International Economics (CIE) have calculated that if double taxation were removed, the trans-Tasman economy would see additional growth of more than $5 billion over the next 20 years.

According to the Report, there would also be further significant benefit from removing the disincentive to invest.

BusinessNZ has strongly advocated the change, since this would enhance earnings, investment and savings.

If each country recognised the other’s system for offsetting tax credits, then investors in both countries would get a fairer outcome from their investment.

Those dividends rightfully belong to those who invested in those companies and should not be dissipated through double taxation.

Having mutual recognition of franking and imputation credits would slightly reduce the tax take in both countries, but this would be more than offset by the greater profits circulating in the economies of countries, boosting savings, investment and growth.

The NZIER-CIE report has been forwarded to the Productivity Commissions of New Zealand and Australia as they consider the issue.

The Commissions are expected to report shortly and we hope that they would recommend that both countries change their respective tax laws to fix the problem.

Removing double taxation is one of the remaining issues standing in the way of a better trans-Tasman economy.

Phil O’Reilly is Chief Executive of BusinessNZ based in Wellington. He was the Guest Speaker at the Indian Newslink Sir Anand Satyanand Lecture held on July 30, 2012 at Stamford Plaza Hotel Auckland.

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