Tax Reform is Welcome but More Needed to Boost Growth

Today’s budget was a mixed bag for business with some positives but there are several negatives, according to the Wellington Regional Chamber of Commerce.

“The reduction in the company rate is very welcome. However a reduction of 3 cents in the dollar is not enough if we are to fully transform New Zealand’s economy and greater reductions are necessary, said Chamber CEO Charles Finny.

“The Chamber has been calling for a lower company tax rate than Australia’s rather than the matching of Australia’s rate. Moreover, many businesses won’t benefit directly from the company tax reduction. Around 40% of businesses were, as at this morning, unincorporated – for example as sole traders or partnerships, but the gap between the top personal and company tax rates provides an incentive for tax planning.

“Government must take steps to reduce personal income tax as well as company tax. An announcement is needed before next year’s budget. We are disappointed that the 2005 decision to inflation-adjust income thresholds has been abandoned.

“Tax cuts are not inflationary if they are accompanied by a reduction in government expenditure yet under this budget the ratio of Government spending to GDP continues to grow. We are disappointed that more effort has not been made to eliminate waste in non-productive government expenditure. We encourage the government to focus on the quality of its expenditure over the next year and on raising productivity in the public sector.

“The changes to the international tax rules to help exporters and manufacturers to expand offshore and the incentives to encourage research and development for loss making firms are welcome as is the increased expenditure on export promotion.

“The increase in infrastructure spending is welcome. New Zealand has run an infrastructure deficit too long. We are supportive of decisions to allow regions to gather regional taxes to help fund transport infrastructure investment. The Chamber has real concerns about the attitude suggested by Government to Transmission Gully. As a key component of SH 1 this is a project of national strategic significance, not a local roading issue. It should funded as a priority from the national roading budget, not on a regional basis. We also question why the government is in effect telling regions how to spend the money raised at regional level.

“We are supportive of KiwiSaver as a means of addressing New Zealanders’ relatively low personal savings rate and providing an increased supply of capital which business and the economy can to tap into. However compulsory employer contributions combined with partially offsetting tax credits will be a concern to many employers. Not only will this penalise employers, it is an opaque and cumbersome money-go-round which will add to businesses’ compliance costs. We would have preferred personal tax cuts so that people have the choice to put money into KiwiSaver.

“We congratulate both the government and Peter Dunne for delivering the tax reductions but urge them to focus on delivering a wider package of tax cuts next year. A low rate, broad-based regime is more conducive to economic growth than a complex system of different rates and tax credits,” Mr Finny concluded.

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