Dr Cullen said the Government would be legislating to counter avoidance of the 39 cent rate and to lower the tax on fringe benefits for workers earning below the $60,000 threshold from which the new rate would apply.
"On the FBT issue, I want to ensure that over-taxation is minimised without substantially increasing compliance costs.
"My thinking at present is that fringe benefits such as cars and loans which can be directly linked to an individual employee should be subject to FBT at a rate which equates with the employee's marginal tax rate.
"My understanding from consultation is that this proposal would resolve some long-standing problems with the FBT regime and is generally favoured, despite the fact that it would entail some increase in compliance costs," Dr Cullen said.
The Inland Revenue Department estimates that up to $250 million of the $1.9 billion the 39 cent tax rate could potentially raise over the next three years will be lost through tax avoidance.
"We will reduce this leakage by anti-avoidance measures.
"One potential problem is that high income earners could avoid the 39 cent tax by substituting salary and wages for employer contributions to superannuation funds which can be drawn on at any time, like a bank account.
"We are looking at two options for dealing with this. One is to cap the value of contributions made by the employer for the employee. Contributions up to the cap would be taxed at the current rate of 33 percent. Contributions above the cap would attract the new 39 cent rate.
"Alternatively, contributions locked into a long-term retirement savings plan could be taxed at only 33 cents while those not locked in were taxed at the higher 39 cent rate.
"The aim is that genuine superannuation savers, even if they are high income earners, will be taxed at 33 cents.
"This incentive may persuade people to increase their superannuation savings, with some loss of potential tax revenue to the Government, but we are not averse to this. One of this Government's policy objectives is to encourage New Zealanders to save more because this will take pressure off the current account deficit," Dr Cullen said.
Work is also underway on mechanisms to discourage people from using service companies or trusts to avoid the tax increase.
"We've been able to draw here on how other countries deal with similar problems although our chosen solution will be tailored to the New Zealand environment. I intend to consult with the relevant private sector groups on the workability of these solutions.
"Subject to the results of the consultation, which I hope to begin next month, the Government intends to introduce a tax bill to deal with the FBT and superannuation scheme issues in late March for enactment by mid-year.
"The FBT changes will come into force with the new 39 cent rate on April 1. The service company legislation is likely to come before the House in May," Dr Cullen said.
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