'NZ must be ready to lower corporate rate'

Stock exchange chief executive Mark Weldon has warned New Zealand must be ready to lower its corporate rate below the current 30 per cent, if Australia drops its rate, or risk a big flight of capital.

Speaking to the Government-sanction Tax Working Group seminar this afternoon Mr Weldon said Australia would probably drop its business rate to 25 per cent as a result of a review currently underway.

If that happened, "we will clearly see flight of capital through the corporate sector", Mr Weldon said.

"It would make it hard to make an argument to a shareholder why you would stay in this jurisdiction."

One possible reaction would be to drop our rate to 25 per cent and find the funding elsewhere.

Other options would be to strike differential rates between local and foreign companies, or set a 30 per cent rate on smaller companies and a lower rate on bigger firms, which are more important for growth.

He also backed a suggestion by PricewaterhouseCoopers tax expert John Shewan to set a 6 per cent assumed rate of return on residential property investment that would generate revenue of about $700 million a year.

He said New Zealand had a highly skewed system with residential property investment overall making a loss and acting as a charge on the taxpayer through tax losses.

He said changes to corporate tax were at the "pointy end" of competitiveness that gave "the biggest bang for your buck".

Earlier economist and investment manager Gareth Morgan presented the most radical suggestion of the day, calling for a comprehensive capital gains tax set at 1.25 per cent.

It would raise $19 billion and allow all tax rates to be reduced to 25 per cent.

He said there should also be a $10,000 minimum guaranteed wage for all adults that would replace all benefits.

The move would allow the machinery that administers benefits to be scrapped.

The seminar has also considered a presentation on a low rate land tax from Motu economist and Reserve Bank chairman Arthur Grimes.

Speaking to reporters at the opening of the seminar,  Finance Minister Bill English said any tax changes will be included in next year's Budget, but he has signalled cuts to company tax may take priority if Australia lowers its business rate.

Mr English said the Government was looking at changes "in the context of the 2010 Budget".

But whether there would be changes was still "an open question".

He said the Government had ruled out only capital gains on the family home, leaving open the group's other options which include increasing GST and adding new property taxes, such as a land tax.

But he said changes would have to be fair.

National's coalition deal with UnitedFuture had the aim of aligning the top personal rate, now at 38 per cent, the trust rate of 33 per cent with the company tax rate at 30 per cent.

Mr English said accountants like the top rates to be aligned.

"That might not be practical. It's not absolutely necessary," he said.

The Government had to take into account what Australia was doing, and there were rumours it was looking at lowering its company rate below 30 per cent.