Targeted tax before personal tax cuts

MEA Media Release – 13 February 2008.
Targeted tax before personal tax cuts.

The Zealand Manufacturers and Exporters Association, (MEA), says that cutting all personal taxes to 30 percent or less is not the solution for increasing levels of productivity and promoting economic growth.

“Changes to the level of taxation need clear objectives in regard to overall benefits to the overall economy, rather than the debate being lost within election year vote buying sound-bites that will not increase incentives for higher levels of investment that drive increases in productivity and lift economic growth and wages over the long term”, says Chief Executive John Walley.

“New Zealand has the largest difference between the rate of inflation and interest rates in the developed world. Therefore, the idea that more money should be injected into the domestic economy as a way of increasing economic performance does not work”.

“Higher levels of investment will drive productivity, margins and wages and this will be achieved through targeted tax incentives, such as accelerated depreciation, incentives for skills development, incentives for active productive investments and further extension of the R&D credits, rather than hoping that personal tax cuts eventually trickle through to the right investments. Personal tax cuts do not have much to do with the supply side of the economy and will increase the pressure on domestic inflation, interest and exchange rates”.

Mr. Walley says that although the current labour market is tight and there are skills shortages in some areas, personal tax cuts need to be deferred until the average annual growth rate in multifactor productivity is significantly lifted above the current level of 0.7% that it rose to between 2000 and 2006.

“Whoever wins a vote buying auction might win the election but we will all pay the price when the domestic economy joins the downward spiral long experienced by our tradable sector. Confidence in New Zealand will slump, the exchange rate will fall and prices will rise at the same time as activity falls. A better way is to target tax incentives at increasing productive activity and productivity”.

“In an ideal world, we would enjoy cuts to all aspects of taxation, yet in 2008 we cannot expect to see improvements in productivity, investment levels, the trade deficit and reduction in domestic inflationary pressure, without better tax balance and targeted incentives and an end to the two economies problem”.

“Cuts to the headline tax rates are no answer to what ails us”.

MEA – the authentic and independent voice for manufacturers and exporters.

ENDS

The New Zealand Manufacturers and Exporters Association (MEA) is a national organisation that was founded by the Canterbury Manufacturers Association (CMA) and the New Zealand Engineers Federation (NZEF). The MEA is New Zealand's only sector focused and independent voice of manufacturers and exporters. MEA members make nearly $2.0 billion in sales and have an export value of around $1.0 billion. Our organisation can trace its beginning to the early history of New Zealand.

As a legacy of the hard work and careful financial management of the past, we have a significant asset base that enables our independence and extends our activity. Subscriptions fund only a small part of our current operating costs.

Membership is open to all manufacturers and exporters and others at the discretion of our Council. Enquiries should be directed to mea[at]mea.org.nz

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