Media Release January 15th, 2001

'Circuit Breaker' survey identifies tax cuts feature as most likely to boost investment

A survey of northern manufacturers shows they would positively welcome more use of the tax system to spur economic growth. Nearly 70 percent of over 200 companies responding to the survey said lower taxes offered the best chance to boost investor confidence.

The Employers & Manufacturers Association carried out the survey following a comment by Finance Minister Michael Cullen late last year after the October Business Summit. Dr Cullen indicated the Government was seeking 'targeted solutions' rather than, for example, reducing company tax rates across the board.

The EMA 'Circuit Breaker' survey sought to identify what business thinks the targeted solutions should be. Three lines of questioning were followed:

1) What three priority areas would most quickly boost investment. 2) Whether a lower corporate tax rate should be targeted only to new start up companies, or for private R&D investment growth, or for investment in exporting. 3) If New Zealand were to set about stimulating higher levels of investment in R&D, which of the following was considered the most important: * introducing tax credits for, say, 20 per cent of the amount invested in R&D, * allowing investment in R&D, including software, to be fully expensed in the year incurred, * firms contracting directly for R&D services with CRI's, research associations and universities with Government subsidising their investment dollar for dollar.

"Our survey identified there is strong support for making much more extensive and better use of the tax system to boost economic growth," said Alasdair Thompson, EMA's chief executive.

"Most businesses said the tax system held by far the key to faster economic growth.

"Interestingly, about 20 per cent of respondents said Government expressions of its commitment to business, and a clear Government strategy and vision for growth, would on their own provide a substantial boost to business confidence.

"Other recurring, tax related growth stimulating factors identified included faster plant and equipment depreciation rates, and extending tax preferences to investment in education and training.

"The survey's second question resulted in equally strong support split evenly for both R&D and exporting: 42 per cent plugged for a lower company tax rate to apply only to those firms showing a commitment to R&D; 44 per cent said the incentive should be for export growth. Just 13 per cent indicated a tax advantage should apply to start up companies.

"For the third of the survey's questions, what stands out is that small and medium size enterprises (sme's) have quite different priorities to those of larger businesses," Mr Thompson said. "Respondents were asked to rank several approaches listed on a scale from the most important, important, helpful, useful, through to making little difference.

"74 per cent of firms rated the expensing of R&D most important or important but 54 per cent of sme's ranked it most important while 38 per cent of larger companies said it was.

"While 49 per cent of firms said it was important for Government funded research agencies to be subsidised dollar for dollar if they contracted directly with private business, twice as many sme's than larger companies rated this investment incentive important.

"Introducing tax credits to boost R&D attracted similar levels of support across all sizes of business; 56 per cent rated them most important or important.

"EMA is in favour of reducing company tax rates below Australia's and below the mid range personal tax rate of 33 per cent. This would boost new investment from offshore while helping lift our poor savings record as earnings were retained in the business for reinvestment.

"Until lower company taxes can be introduced across the board, our survey indicates strong levels of support for using the tax system to stimulate R&D and innovation."

Further comment: Alasdair Thompson tel 09 367 0911 (bus) 09 303 3951 (hme) 025 982 024

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