Home > Our Publications > New Zealand Outlook > 2001 > July

THERE were no shocks and no excitement in New Zealand's Budget, which did nothing for the exchange rate against the mighty US dollar.
It was a conservative budget, with a modest surplus, but disappointed the business community by not cutting corporate tax.
The Budget forecasts GDP growth in the year to March of 2.3 per cent, increasing to 2.6 per cent the following year and averaging 3 per cent the next two years.
The $NZ641 million surplus was slightly lower than market expectations but had been dragged down by the slowing world economy, Finance Minister Michael Cullen said.
The Corporate tax rate in New Zealand remains at 33 per cent after the Government refused to follow Australia's lead and cut it to 30 per cent - a decision that disappointed but did not surprise the business community - and Dr Cullen said a cut "was not likely in the next year or two".
"They'll be disappointment that there's not signalling of a corporate tax rate cut," he said. "If the problem is that our tax position is not attractive enough for foreign investors, is lowering the corporate tax rate the best way of trying to deal with that issue?"
While Australia was soon to have a 30 per cent corporate tax rate, it was in effect no lower - and perhaps higher - than New Zealand because of employer superannuation contributions and the abolishment of accelerated depreciation in Australia, Dr Cullen said.
"Probably the overall burden of corporate tax in Australia, particularly with the compliance costs of their GST system, is if anything probably slightly higher than New Zealand," he said.
But Business NZ chief executive Simon Carlaw said the refusal to drop the tax sent out the wrong signals to trading partners. "Australia is going to remain competitive as a trading nation, but we are sending out signals that we are going the other way," he said.
Opposition Leader Jenny Shipley said the failure to cut the corporate tax rate would see New Zealand become "an increasingly uncompetitive backwater" with more jobs and industry disappearing across the Tasman.
While treasury forecasts were "benign", Dr Cullen said an average GDP growth of 3 per cent between 2002 and 2005 was "good but not good enough".