On May 26th the IMF released The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand and Potential Growth of Australia and New Zealand in the Aftermath of the Global Crisis, two separate working papers concerning aspects of the New Zealand and Australian economies, in the face of the receding effects of the global economic crisis.

The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand, advises the New Zealand Government to rebalance its taxation policy to reduce the reliance on labor and capital taxation. Projections indicate that if appropriate alterations are made to shift fiscal focus to consumption taxes, New Zealand’s long-term growth potential will rise 1 percent above baseline. Although, the benefits will be negligible if the consumption tax revenues are redistributed via public transfers, such as benefits and welfare programs. The paper also suggests that Government spending be heavily reduced. As an example, the paper suggested that if Government expenditure be capped at 1 percent of GDP long-term economic growth could increase by 2 percent.

Potential Growth of Australia and New Zealand in the Aftermath of the Global Crisis discusses the impact of the financial crisis on New Zealand and Australia. According to the paper, New Zealand and Australia can be expected to undergo medium-term potential growth levels of 2.33 percent and 3 percent respectively. The Governments of both countries are warned to expect economic hurdles in the form of higher costs of capital. Although the difficulties could be offset by increased demand for commodities, especially from quickly recovering Asian economies.

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In the recently released April 2010 MYOB Business Monitor report Australian and New Zealand business owners were surveyed for their opinions on the current economic situation in both nations. The report showed that 39 percent of surveyed businesses reported a fall in revenue during the twelve months to July 2009, while only 35 percent of New Zealand firms provided the same response. Commenting on the difference, Tim Reed, MYOB’s Sydney-based Chief Executive, said that the survey shows that New Zealand business showed a great sense of resilience throughout the economic downturn.

The report revealed that 50 percent of New Zealand business owners expected the economy to improve over the course of the next 12 months. Of the 1000 individuals surveyed, 45 percent expected to see improved revenues throughout the year, while 37 percent are not actively looking for advice on how to improve their business’s performance. An encouraging 52 percent of survey takers reported the economic situation making it “easy” to run their business, an only 14 percent claimed it to be “difficult”.

In a negative aspect, New Zealand business owners expected fuel prices to exert the most significant pressure on their operations. Cash flows, interest rates and exchange rates were listed as the next most prominent concerns.

The New Zealand Government has begun to incorporate the DTA into the country’s law system through a signing of an Order in Council on February 17th, according to Peter Dunne, New Zealand Revenue Minister. Once the legal incorporation is complete for both nations the DTA will come into full effect. Australia is yet to commence their respective ratification process. Changes within the DTA are expected to begin in late 2010, two months after the expected conclusion of both countries’ ratification process.

The DTA which was a product of more than a year’s worth of negotiations was signed on June 29th 2009. The main features of the agreement are superannuation portability and several lowered withholding tax rates. On royalties the withholding rate levy will be cut by half to a level of 5 percent. The rate on interest will be lowered to 0 percent for all financial institutions, and remain at 10 percent for all other firms. Dividend payments will be categorized into one of three rates, ranging from 0 percent to the current 15 percent, differentiated by shareholding levels. Further, tax-exempt pension payments from either country will be regarded as tax-free in the corresponding nation.

At the Order of Council announcement, Peter Dunne described the DTA as a recognition and update of the already close business relationship between New Zealand and Australia. He continued on and said, “I expect the new DTA to bring significant benefits to New Zealand and improve certainty for trans-Tasman business.”

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The second protocol to the New Zealand-Belgium DTA was created to ensure the standing agreement’s relevance and applicability to the current tax laws of both countries. The DTA agreement is required to be amended in both countries before the second protocol can come into legal effect, in New Zealand this is done by Order in Council. Peter Dunne claimed in a media statement on December 10th, that he expects progress to be announced in early 2010.

The original DTA between New Zealand and Belgium was signed on September 15th, 1981, and came into force December 8th, 1983. New Zealand currently holds 35 DTA agreements and 10 Tax Information Exchange Agreements, one of which is with Belgium.

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The KPMG 2009 Corporate and Indirect Tax Rate Survey, which investigates the corporate and indirect tax rates of the OECD for the 2009 year, has found that New Zealand holds the seventh highest corporate tax and one of the lowest indirect tax rates of the nations surveyed.

Ireland and Iceland had the lowest corporate tax rates in the survey, with 12.5% and 15% respectively. While New Zealand’s rate of 30% was rated 7th, with USA and Japan reigning the top spots at rates of 40% and 40.69% respectively.

The survey found that New Zealand holds the sixth lowest indirect tax rate in the world, with its 12.5% GST rate. Canada meanwhile has the lowest rate at 5%, and Denmark was the highest at 25%.

According to the survey, global governments are increasingly more reliant on indirect taxes for income procurement. Paul Dunne, KPMG Senior Tax Partner, commenting on the global levels of indirect taxes said “However, rate increases increase prices for consumers. For this reason GST rate increases quickly become political and therefore if considered in New Zealand should be thought of as part of a broad package of measures.”

The New Zealand economy is predicted to be out of its recessionary period according to the Treasury’s economic indicator report, released on the 7th of September. It is thought that the quarter ending September will be the last in which New Zealand will experience contracted economic indicators. The report was accompanied with the statement “A small decline in real gross domestic product in the second quarter is likely to represent the last quarter of contraction in the current sequence.” Gross Domestic Product figures for the second quarter are due to be released by Statistics New Zealand on the 23rd of September.

The cause of these favorable changes was pegged to improved global economic conditions, New Zealand’s growth inbound migration and increased consumer confidence. Although, it was explicitly stated that it is likely that unemployment will continue its upward trend even into 2010.

New Zealand and Singapore currently have a Double Taxation Agreement, it was signed in 1973 and has been present since its inception. As stated by Peter Dunne, New Zealand Revenue Minister, at the release of this signing “The agreement will modernize our tax treaty arrangements with Singapore and bring them into line with best international practice,” and “In particular, the new agreement will allow for full exchange of information on tax matters between our two countries.”

Singapore imports approximately NZ$1.9 billion worth of goods into New Zealand, imports NZ$700 million worth of New Zealand goods and has NZ$1.6 billion worth of direct investments in New Zealand. The importance of Singapore as an economic and trading partner cannot be understated. The DTA will allow for this relationship to flourish further, by providing parties in both countries with certainties about the taxation liabilities that will be faced in their activities.

New Zealand has signed Tax Information Exchange Agreements (TIEA) with the Cayman Islands, the British Virgin Islands and Gibraltar. The Gibraltar agreement was signed in a London ceremony, while the other two were signed in Washington DC.

Peter Dunne, New Zealand Revenue Minister, announced these new agreements on the 14th of August. He commented “Recent months have seen a flurry of TIEA signings internationally, as low-tax offshore financial centers seek to achieve a sufficient number of TIEAs to allow them to be seen as meeting the OECD’s standards for transparency and information exchange.”

The TIEA is a bilateral agreement, allowing for procedures by which tax information can be exchanged between two countries, they are aimed at improving tax compliance internationally. The agreements will only come into affect when both countries have given legal effect to them.

In a London ceremony on the 22nd of July, Revenue Minister Peter Dunne signed a Tax Information Exchange Agreement with Guernsey on behalf of New Zealand. In a Government released statement, Peter Dunne said “The Tax Information Exchange Agreement with Guernsey will help to encourage greater co-operation between tax authorities,” and “I am very pleased with this important addition to New Zealand’s network of information exchange agreements.”

The Tax Information Exchange Agreement was put in place to allow a procedure by which the two governments can request tax records, business books and accounts, bank information, ownership information, with the explicit aim of preventing tax evasion.

New Zealand Finance Minister Bill English and New Zealand Finance Minister Bill English singed a Memorandum of Understanding on the 16th of July, indicating that both governments formally acknowledge their intent to implement into law provisions for superannuation portability.

Legislative changes are still required before the superannuation portability can become a reality, this is expected to occur mid-2010. Conditions upon the portability are still to also fully be determined, although some have already been determined in regards withdrawal ages and the matter of Kiwisaver member benefits and kick-start amounts.