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A New Zealand tax expert says it will be a stretch to align the top personal, corporate and trust tax rates at 30%.
The government has outlined changes to the tax system to make it more "fair", including raising the GST rate to a maximum of 15% and cutting personal tax rates across the board.
However, Prime Minister John Key, in his opening address to parliament on Tuesday, made no mention on the government's intentions to align the top personal, trust and corporate tax rates which currently sit at 38%, 33% and 30% respectively.
Geof Nightingale - a member of the Tax Working Group which came up with the tax reform recommendations for the government - says the alignment of the rates at 30% would be "just about possible" with the other tax changes Key outlined.
"To get down to 30% from 38 (costs) about $1 billion, and the depreciation changes (to property tax) might just get you there with other tweaks and a little bit of leftover GST, but they're going to have to keep some money in the kitty to respond to the Australian tax review," he says.
He says if Australia was to reduce its company tax rate, New Zealand would have to follow in order to remain competitive.
Raising GST to 15% would give the government an extra $2.3 billion each year in extra revenue, but this will largely be scoured by a proposal to lower income tax rates across the board.
"They've very clearly signalled that they're going to compensate lower income earners and beneficiaries and superannuatants for that (GST) rise, so that will use quite a bit of that revenue up, about $300 million for beneficiaries and superannuatants and, depending on how they do it, about $1.5 billion in recycled tax cuts at the lower end," he says.
Similarly, financial commentator Bernard Hickey does not believe the government will have the funds to lower the top personal tax rate further than the 33% trust tax rate. He is also surprised by the proposal to increase GST, saying it raises relatively little cash.
"Certainly once you compensate people for the GST, only a couple for hundred of million dollars (is left). And, it creates a whole lot of bureaucrats in the IRD and Social Welfare to compensate people," he says.
Overall, Nightingale is pleased with the proposals, with the government having picked up on many of the working group's recommendations.
"Critically they accepted that there is a strong need for change, the current system's not sustainable...they've announced what they think is politically sustainable out of our recommendations," he says.
Meanwhile, Hickey is underwhelmed, saying the government has passed on the opportunity to provide the step change Key promised. He says a land and capital gains tax would have given taxation the overhaul it needed.
"That would've given residential property investors a bit of a shock. It may have reduced house prices a little bit and that would've given young New Zealand a chance to think 'maybe I can own my own home at some stage'. It would've also rebalanced the economy and increased our growth rate," he says.
By ruling out a "comprehensive" capital gains tax, Nightingale says the government could introduce depreciation disallowance and loss ring-fencing.
However, he says Key's wording of no "comprehensive" capital gains tax does give the government room to move on more targeted measures.
Key has indicated the government could move quickly on
implementing tax changes which could come in as early as October 1
once they are announced in May's Budget.
