Cut tax rate: ManFed

By Brian Fallow

WELLINGTON - The Manufacturers Federation in calling for a cut in the company tax rate to 25c in the dollar, says it is the single most important measure needed to rebuild New Zealand's competitiveness.

ManFed chief executive Simon Carlaw said there was a lot of merit in both main parties' enterprise policies, but they would not produce results inside three to five years.

"We need a cut in the business tax rate now. We can't think of another policy which would have immediate effect and make a statement about commitment to growth and the development of enterprise.

"Australia intends to reduce its business tax to no more than 30c in the dollar. To remain competitive we need to do better than this."

While the Government has reduced the average level of personal income tax, business tax has remained unchanged.

Cuts in personal tax rates reflected the fact that most households had little to show in terms of real income growth for the reforms of the past 15 years.

"But that reflects the reality that we are a country that still relies for 60 per cent of its export income on commodities that are declining in value, and have become that much poorer over that period. That picture is clearest in provincial New Zealand.

"It is plain as a pikestaff that value-added export production that is relatively price-insensitive is the only way we will be able to buy first-world services in the future."

Mr Carlaw said ManFed did not accept that state spending had been squeezed to the point that it was now incompressible.

"The big spend is in the politically hardest areas of health, education and welfare. But the increase in spending there has not produced better outcomes.

"If there has to be a target, a prioritisation, surely growth has to be that target."

New Zealand's sustainable economic growth rate - usually estimated to be around 3 per cent a year - needed to be lifted.

"Three per cent growth will just keep the shop ticking over. It won't produce jobs for young New Zealanders down the track. If we are not to export talent on a continuing basis we need to do some prioritising.

"We set out to do that 15 years ago but the process became derailed. As in 1984, 60 per cent of our exports are commodities. The manufacturing sector is about the same size it was in 1984."

On more specific tax policy issues, ManFed notes in the first installment of a Manifesto for Growth, that tax write-offs for research and development are offered by most of New Zealand's major competitors but says that a significant cut in company tax might be just as effective in encouraging more research and development.

It opposes the reintroduction of wealth taxes as death duties and stamp duties.

It says that savings need to be fostered. Current law taxes some superannuation savers too heavily and the bias towards property rather than more productive investment "needs to be sorted."

ManFed says tax compliance costs urgently need to be reduced citing provisional tax payments and the varied frequency with which different taxes have to be paid.

It seeks a flatter personal tax regime, with a top rate of 25c in the dollar.