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Tight finish for marathon tax bill

The marathon reform of New Zealand’s investment tax regime is nearing the finishing line – and it appears calls for a lower rate have not been heeded by the government.

Thursday, November 30th 2006, 6:36AM

by Rob Hosking

Parliament’s finance and expenditure select committee met behind closed doors yesterday to finalise its report, which will be tabled in Parliament early next week.

One New Zealand First MP, deputy leader Peter Brown, is refusing to vote for the bill, describing the proposals, even in their revamped form, as a capital gains tax.

He is being backed up by Guinness Peat Group head Tony Gibbs, who damned the whole approach of the law change as a capital gains tax, and said that only setting the “fair dividend rate” (FDR) at 0% would be acceptable.

Much of the arguments at the final stages have been whether the FDR should be set at 5%, as is proposed, or a lower rate.

Former National finance spokesman, John Key, has argued for a rate of 3%, and most submitters suggested something between 2.5% and 3.5%.

Estimates of the fiscal costs of the different rates have been provided to the select committee, but these have not been made public.

One National MP suggested the difference in revenue is not great, and that the government should be able to wear a rate lower than 5%.

However it is understood the minister who is the most adamant the rate should stay at 5% is not Finance Minister Michael Cullen but New Zealand First leader Winston Peters.

Select committee chairman Shane Jones says there are talks with the Maori Party and the Greens to get support for the bill, or at least abstentions. If this is not forthcoming, Brown’s defection - as well as being a breach of New Zealand First’s support agreement with Labour – means the government does not have the numbers to pass the bill.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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