Media release

17 May 2007

Tax cut great but some big negatives

The business sector will welcome some features of today’s Budget but others are out of line, says Business NZ Chief Executive Phil O’Reilly.

“The reduction in the company tax rate, negotiated as part of United Future’s coalition negotiations with the Government, is very welcome and has been a long time coming.  What we would hope now is that Government gives a clear indication they will actively review the rate on an ongoing basis, with a view

“More funding for export links in Asia and expansion of NZTE assistance for New Zealand companies in overseas markets is positive for exporters.

“Changes in the controlled foreign companies tax regime will also be welcomed – this aligns us with the rest of the world.  Government commitment to improving private sector investment in R&D is also welcome but we are not certain that the tax credit scheme that has been announced will be the simplest and most effective way of achieving positive change.  We would recommend that the Government keep this situation under review and that the effectiveness of the tax credit be reviewed not later than two years from its introduction to see whether it has achieved the benefits planned.

“There are several big negatives in the Budget though.  The Government’s overall dominance of the economy is not abating, making tax reductions less effective, and squeezing out some of the benefits companies might otherwise have enjoyed.  This means we are likely to see continued pressure on inflation and the NZ dollar.

“The proposals to make compulsory matching employer contributions for KiwiSaver, even with the tax credit for reimbursements, will load costs on employers that are not needed at this difficult time. 

“Compulsory costs imposed on employers without their agreement or buy-in is not helpful given the significant negative elements in the current business environment. 

“And we are concerned the Government's spending on industry training is not keeping pace with demand – an issue because skills are of profound importance for economic growth.”

ends

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