Employers Say Cullen Gives With One Hand...

Businesses will not benefit from the 2007 budget as the Government gives with one hand and takes with the other.

The Government was praised for the business tax reductions outlined in the budget. However the employer contributions for the KiwiSaver scheme, which is compulsory for employers to offer, will in effect cost companies more than the tax cut received.

“Making employer contributions compulsory to KiwiSaver will cost companies more than the three cents tax rate cut they are getting,” says Alasdair Thompson, chief executive of the Employers & Manufacturers Association

Mr Thompson says every time company tax rates have been cut in the past, the tax take from business actually increased. He says making it compulsory for an employer to contribute to an employee’s KiwiSaver account is a bold change to the KiwiSaver scheme as originally proposed and this compulsion is unfair and intrusive.

“As National's John Key said, Cullen has taken $2 billion off businesses for KiwiSaver and given back $1 billion, most of it in the form of increased Government spending,” says Mr Thompson.

However, Rt Hon Helen Clark prime minister at the Auckland Chamber of Commerce post budget luncheon said that the budget has large and overwhelmingly positive implications for business.

“It delivers the first reduction in the corporate tax rate since the fourth Labour Government’s reduction in 1988. And it does much else besides that to boost economic growth and development,” says Ms Clark.

The business tax reform will allocate $3.4 billion to promote research and development. However, in order for businesses to qualify they are required to contribute at least $20,000 to research and development initiatives.

Michael Barnett, chief executive of the Auckland Chamber of Commerce, says that while research and development is important for fostering business and economic innovation and growth many small to medium size businesses do not have the finances available to participate in the Government’s initiative.

“It’s a good thing, but the scheme’s detail requiring a point of entry for companies to spend $20,000 themselves will be too high for many,” says Mr Barnett.

While Mr Thompson agrees that providing a tax break and support to businesses for research and development is positive, the Government could have allowed for larger tax cuts.

“Most of the long list of extra Government spending would be better channelled into a bigger tax rate cut,” says Mr Thompson

In addition to large businesses, there are 300,000 small to medium size businesses in New Zealand which employ 20 people or less and they have not been included in the tax cuts outlined in the 2007 Budget, as they operate as sole traders or partnerships. More ...2

“There is a part of the economy that doesn’t stand a show of benefiting. 40 per cent of small to medium size businesses” says Mr Barnett.

“The Budget's three cents reduction in the company tax rate to 30 cents in the dollar is welcome but not bold or imaginative enough. Overall, the Budget delivered a long list of increased Government spending rather than tax cuts." says Mr Thompson.

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