“The Māori economy is tipped to grow at a faster rate than the country’s economy as a whole – more than double,”
Act Party Leader
ACT’s fundamental belief is that the government should spend less of your money. You should keep more of it. That goes for both personal income tax that you pay on your salary, and the tax that business owners pay in company tax.
The Government’s accounts are in surplus – the tax taken from New Zealanders exceeds the amount Government is spending. At the same time, taxpayers bear the cost of a large amount of wasteful spending. There are numerous grants and subsidies out there to support businesses and projects that New Zealanders would never voluntarily invest in – golf contests, yacht races, research into the Southland accent and subsidies to some of our biggest companies. ACT would make savings by cutting corporate welfare, and would use this money to deliver a company tax cut. We would return government surpluses to New Zealanders by delivering a tax cut in every income tax bracket, and ensuring no-one pays more than a 25% tax rate.
ACT would cut the company tax rate from 28% to 25%, with a long-term plan to cut it even further. Businesses around the country tell us that, rather than the National Party’s plans and strategies, grants and subsidises, the simplest thing that the Government could do to support business growth is a reduction in business taxes. We know that reducing the tax burden on all companies will enable them to grow, take on new staff and pay higher wages. Our cut to the company tax rate is estimated to reduce government revenue initially by $1.1 billion per year. We will balance this by reducing spending on corporate welfare – grants and subsidies to businesses. We believe that business growth overall will be better served by reducing the tax burden on all companies, rather than picking winners with taxpayer money. Greater after-tax returns will incentivise greater investment in new businesses and growth of existing businesses. ACT would also tie personal tax bracket thresholds to inflation, ending the ‘bracket creep’ that sees New Zealanders taxed at higher and higher rates even when they are no wealthier.
“The simplest thing that the Government could do to support business growth is a reduction in business taxes.”
Baker Tilly Staples Rodway Comment
Commentary by Mike Rudd
Baker Tilly Staples Rodway Auckland
It has been great to see the political parties currently in the House providing some comments on their taxation policies for small to medium enterprises (SMEs).
The consensus appears to be against massive changes to our taxation system, but instead continuous improvement. We would hope that this is because it is functioning properly, but some might argue that there are big issues with our system that politicians are too afraid to address. We certainly believe our system is working well, although there are challenges in the taxation of multinationals that New Zealand shares with other members of the OECD.
Only a couple of parties had policies that specifically addressed SMEs, although the general consensus was that an efficient tax system should benefit SMEs, as they will spend less time on compliance and more time on their business. In the same vein, we argue that the current broad based, low rate system results in most people and entities being taxed on an equitable basis and doesn’t result in absurdities. We thankfully remain semi-immune from overseas nuances such as a court having to decide what constitutes a biscuit (as in the United Kingdom), or business spending hours trawling through an 87 page document to determine if their smashed avocado on toast is subject to GST (as in Australia).
Inland Revenue’s Business Transformation programme appears to be supported by all sides of the spectrum, and while there are efficiencies to be gained, the word on the grapevine is that Inland Revenue have been experiencing troubles with implementation. As Inland Revenue develops systems that will enable it to track more and more information, we have a sneaking suspicion that it is only a matter of time before any efficiency gains that taxpayers will obtain under the new system will be swallowed up by the time taken to gather and provide IRD with further information, and respond to questions about any discrepancies between information sources. From a fairness point of view, new systems may make it easier for Inland Revenue to take long-promised action against the cash economy.
The Treasury’s Pre-election Economic and Fiscal Update (PREFU), which came out after the MPs made their submissions, but before publication of this magazine, has resulted in statements being made that appear to reduce the differences between the government and the opposition in the area of tax. The opposition, for instance, looks like they have ruled out increases in income tax or changes to GST, while awaiting a tax working group report before implementing other tax changes. There are therefore few tax changes that could remain, apart from a capital gains tax, which is still the big unknown and is seen as a cure for rampant house price increases. A capital gains tax has not been a cure for high house prices in places such as Australia and the United Kingdom. More likely, house prices have increased because of an undersupply of houses in the right place and an oversupply of (relatively) cheap money.
Unfortunately, a capital gains tax will not help SMEs, as their owners will be taxed when they sell their business, leading to an even greater shortage of capital in the New Zealand investment market.
No matter which block comes into power, it looks like Tax Freedom Day, which was 8 May this year, should stay around the same date. Tax Freedom Day is the day that New Zealanders collectively paid off their tax bill for the year and could keep the rest of their income for themselves, see the Winter 2017 edition of NUMBERS for more details.
Largely, the proposed changes on all sides are a small measure of good news for SMEs and we thank the parties for their contribution to this issue of NUMBERS.
Politics is moving fast, so it is fair to note that these responses were received in the week ended 13 August.