Tax expert warns of risks in corporate tax cut considerations

A change to corporate tax rates has been floated by the Finance Minister as part of the Government's growth agenda, but a senior tax expert has warned that such a move could come with risks.

Corporate tax rates are one of the factors businesses consider when choosing whether to invest in a country.

Finance Minister Nicola Willis said the current rate was "reasonably high" compared to other countries, saying it made the country less competitive.

At 28%, New Zealand has one of the highest corporate tax rates in the OECD.

Of these 38 economies, only five have a higher corporate tax rate than New Zealand. Except for Australia, all have a much lower GDP per capita.

OliverShaw founder Robin Oliver said corporate taxes were an "important part" of the system and that if New Zealand wanted to grow the economy, it needed more investment.

"If we tax investment and business income highly, we're not going to get it."

Small, open economies similar to New Zealand, such as Singapore and Ireland, had much lower rates of 12.5% and 17%.

Those countries "go for growth" with lower taxes on investment and business income, while New Zealand "decided to go for more equality and being poorer as a result", Oliver said.

In the 2024 financial year, corporate tax revenue was $16.91 billion, making up 14% of the Government's total taxation revenue.

Oliver said fiscal constraints make it "certainly challenging" to lower the corporate tax rate - reducing it from 28% to 25% could result in a loss of $1.2 billion in revenue.

"That's not going to cut the mustard. We've just lost $1.2 billion of revenue. It's not going to go nowhere near competitive."

"Now, you can say, well, we'll go for growth, and we'll get that $1.5 billion for every 1% of GDP, but that will take time."

Alternate options for driving short-term economic growth included decreasing the tax on inbound investment, relaxing rules around interest deduction, and making it attractive to invest in plants and machinery rather than land.

"New Zealand's got choices, and you can take a risk on the fiscal side. But, I think more logically, you need to look at other options as well," Oliver said.

Bigger structural changes he would suggest if he had free rein were changing the mix between GST and income tax.

"At the moment, it's two-thirds income tax, one-third GST. I would go, two-thirds GST, one-third income tax."

This would decrease income tax but necessitate a GST rate of around 30%.

"It's going to be difficult to persuade the public that their food costs are going to go up by that amount."

He said it was a social issue that New Zealanders have to confront.

"Do we want to go for growth and all the benefits that gives us, we've got to reduce our tax on investment and mobile talent, or do we go for a more equal society and be poor as a result?"

Q+A with Jack Tame is made with the support of NZ on Air.