New Zealand Budget Report

Friday 20 May 2005

Prepared by the CCH Tax Editors, in association with

and

The Treasurer and Minister of Finance, the Hon Dr Michael Cullen, presented the 2005 Budget Statement to Parliament on 19 May 2005.

This CCH Budget Report has been prepared with the assistance of specialist practitioners from Ernst & Young and Bell Gully. It covers announcements of interest to tax practitioners and the business community in general.

2005 Budget overview

2005 is an election year. That event has cast a long shadow over the shape of this year's Budget.

The relationship between the two events can perhaps be seen most clearly in the proposal to modestly tinker with the tax rates beginning on 1 April 2008. Many will see this measure as designed to remove from the political arena the issue of the level of personal taxation.

The Minister of Finance has been on record a number of times as opposing personal tax cuts. It can be speculated that the explanation for the limited dilution of the Minister's well-known stance is a desire to diffuse the issue as one that could sensibly be put before the electorate.

The debate immediately following the Budget can be expected to reveal whether the new tack will meet with political success.

Developments on the personal tax front should not be allowed to overshadow announcements in other areas. Important proposals include the intention to introduce work-based superannuation arrangements and the substantial revamp of the taxation of equity investments.

The proposed exemption for the capital gains of pooled investment funds and moving a step forward to tax the unrealised gains on foreign equities can be regarded as significant developments.

The tax practitioner should also be aware that the Budget speech was followed by the introduction of a taxation bill implementing many proposals in addition to addressing the topic of corporate migrations.

Bell Gully is a leading New Zealand corporate law firm with extensive commercial, corporate, finance, banking, taxation, litigation and commercial property experience. Bell Gully's tax division is one of the largest corporate tax divisions in a New Zealand law firm and advises on all aspects of New Zealand taxation including a substantial tax litigation and indirect tax practice.

Ernst & Young is one of New Zealand's leading professional services firms, offering clients a full range of services in taxation, assurance, corporate finance, real estate and business partnering. Ernst & Young has focused tax groups which provide specialist tax advice and assistance to the corporate and entrepreneurial sectors based on the strengths of both their local expertise and the support of the global Ernst & Young network.