A joint study by the Australian and New Zealand Productivity Commissions into the mutual recognition of tax imputation credits has dashed hopes Australian bank investors could benefit from a harmonised system any time soon.Currently Australian bank shareholders are unable to receive imputation credits on the tax-paid dividends from the New Zealand arms of these banks. That means those dividends are effectively taxed twice.The Commissions estimated the mutual recognition of such credits could boost investment flows between the countries and improve capital efficiency.The effects could give a combined boost to GDP on both sides of the Tasman of up to NZ$290 million or A$232 million per year.But the Commissions said such mutual recognition could reduce combined tax revenues for both the New Zealand and Australian governments by as much as NZ$1.175 billion or A$941 million. Australia's government would be the biggest loser, with lost tax revenues estimated at as much as NZ$1.015 billion or A$812 million.The commissions said the two governments should either examine whether any economic gains from mutual recognition could be redistributed, or dump the idea once and for all. Business groups were disappointed at the decision not to recommend mutual recognition wholeheartedly.The Australian Bankers' Association (ABA) and the New Zealand Bankers' Association (NZBA) described mutual recognition of tax credits as an "absolute 'must do'" for the trans-Tasman economy as the current double taxation distorted investment decisions."Mutual recognition of imputation and franking credits would expand the number of trans-Tasman investors from which to source capital, and increase the efficiency and flexibility of trans-Tasman investment," said NZBA CEO Kirk Hope. "It would provide a substantial net benefit to the overall trans-Tasman economy." The Australia New Zealand Leadership Forum (ANZLF) said the Commissions' decision to "kick for touch" with the decision meant they had failed to move the trans-Tasman business relationship to the next level."It is particularly disappointing that the report hedges its bets on the biggest issue of all - double taxation," said Australian ANZLF co-chair Rod McGeoch.The four Australian-owned banks in New Zealand - ANZ, Westpac, NAB's BNZ and CBA's ASB - generated pre-tax profit in the last four quarters of NZ$5.08 billion (A$4.06 billion), KPMG's Financial Institution Performance Survey shows. That implied taxes to be paid of around NZ$1.42 billion ($A1.14 billion) at the New Zealand corporate tax rate of 28 per cent.The ANZLF said that without mutual recognition of tax credits Australian equity investors effectively paid 60 cents tax in the dollar on their investments in New Zealand, while New Zealanders effectively paid 53 cents tax in the dollar on their investments in Australia. The report will now be considered by both governments. Both Coalition and Labor governments in Australia have previously signalled their reluctance to agree to mutual recognition of tax credits, because the Australian government has much higher tax revenues to lose than the New Zealand government.