New Zealand’s tax system second most competitive in the world

Findings that New Zealand’s tax system is the second most competitive of all 34 OECD countries reflect changes that should be promoted more internationally, says Greg Thompson, Partner and National Director, Tax at Grant Thornton New Zealand.

The Tax Foundation’s International Tax Competitiveness Index ranks tax systems on the basis of low tax burdens on business investment and neutrality through a well-structured tax code.

The only country found to have a tax system more competitive than New Zealand is Estonia which has a 21% corporate tax rate, no double taxation on dividend income, a nearly flat 21% income tax rate, and a property tax that taxes only land (not buildings and structures).

France’s tax system is least competitive with one of the highest corporate tax rates in the OECD (34.4%), high property taxes that include an annual wealth tax, and high, progressive individual taxes that also apply to capital gains and dividend income.

Australia’s system is ranked the fifth most competitive.

A report on the findings says they reflect New Zealand’s reaction to concerns raised in 2010 that global trends in corporate and personal taxes were making this country’s system less competitive internationally.

“In response to these global trends, New Zealand cut its top marginal income tax rate from 38%to 33%, shifted to a greater reliance on the goods and services tax, and cut their corporate tax rate to 28% from 30%,” the report says.

Greg Thompson says other factors such as no inheritance tax, no general capital gains tax and no payroll tax means New Zealand has a system that can be promoted internationally as simple and fair.

“In the global marketplace companies move some or all of their operations to parts of the world where it is most economic for them to be.

“In the past week ANZ has announced that it is moving a small number of jobs from New Zealand to India. This is against a background of ANZ on-shoring over 350 jobs to New Zealand in recent years. We have also seen companies in the Northern Hemisphere move elements of their business, such as their call centres, to New Zealand.

“In this type of global business environment, New Zealand should be taking these latest findings and saying to businesses worldwide ‘we have a tax system that is simple and fair, and it can only be beaten by one other OECD country’.     

“It’s a simple message that could have a significant impact.”

The Tax Foundation’s findings are consistent with the latest Grant Thornton International Business Report survey which has found New Zealand small to medium enterprises (SMEs) are extremely comfortable with New Zealand tax policy and their tax risk.

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