Charges, levy rises sting business

By SIMON COLLINS and BUSINESS HERALD STAFF

Labour's 1999 Pledge 7:
No rise in income tax for the 95 per cent of taxpayers earning under 60,000 a year. No increases in GST or company tax.

Petrol tax is up 4.7c a litre, cigarette tax up $1 a packet, accident compensation levies on the self-employed up 30 per cent and lots of business costs have increased - but the Government has still stuck to its "no tax increases" promise.

The trick is in the wording. The last of the seven pledges on Labour's 1999 election "credit card" read: "No rise in income tax for the 95 per cent of taxpayers earning under $60,000 a year. No increases in GST or company tax."

That pledge has not been broken. The company tax rate, and the top personal rate for those on under $60,000, remain 33 per cent. GST is still 12.5 per cent.

But neither Labour nor its Alliance coalition partner ever promised not to raise taxes on petrol or cigarettes or other levies and charges. Nor did they promise to hold business costs generally.

The petrol tax and associated increases in road-user charges for light diesel vehicles were designed to raise $227 million in the next 16 months to pay for new motorways and road improvements, mainly in Auckland, and also to help get timber out of the forests in Northland and on the East Coast.

The $1 rise in cigarette taxes in the coalition's first budget in 2000 was part of a broader anti-smoking package, which included the proposal to ban smoking in public bars.

And the accident compensation levy increase reflected compensation costs, which were previously hidden by drastic cuts in ACC levies in 2000, when the new Government wanted to show restoring the state monopoly was not going to raise costs.

The Government still appears to want business support, as the employer levy, cut from an average of $1.47 in every $100 of payroll in 1999-2000 to just 90c last year, stays at 90c this year.

But the levy on the self-employed, cut from $1.85 in 1999-2000 to $1.35 last year, went back up yesterday to $1.75.

The levy on motorcyclists leaps from $138.81 a bike to $211.65. ACC Minister Lianne Dalziel said motorcyclists had been funding only 12 to 22 per cent of the total costs of injuries from accidents involving motorcycles, and would still be paying only 35 per cent.

Despite these increases, economist Brian Easton said the Government had been "very disciplined" in its overall tax and spending decisions.

"The degree of discipline of this Government on the fiscal side, compared with Rogernomics [in the last Labour Government], is overwhelming," he said. "Rogernomics had enormous deficits."

The Institute of Economic Research estimates that total Government revenue has dropped from 35.6 per cent of gross domestic product in the year to June 1999 to 33.7 per cent this June year.

Government spending has dropped marginally more, from 35.1 per cent to 33.1 per cent of GDP, so the fiscal surplus has improved slightly from 0.5 to 0.6 per cent.

The main reason for those fiscal improvements is the rise in economic output in the past two years, driven by high commodity prices and good weather.

As far as business is concerned, however, direct Government charges do not tell the whole story. The Government has introduced several policies which have increased costs.

Business NZ complains that on top of the higher road-user charges, fuel taxes and ACC levies, businesses have had to pay out to cover changes in the way fringe benefit tax has to be paid, the loss of ACC no-claim rebates and the constant increases in local authority rates.

The proposed new workplace safety rules, which are due to be in place before the election, are expected to lumber firms with extra costs for training staff, allowing workplace safety representatives to attend educational courses and - in theory at least - contingent liability provision for higher fines.

The Employment Relations Act is already blamed for making industrial negotiations more expensive to conduct, requiring more extensive training of managers and making additional provision for union representatives to be allowed time off to attend educational courses.

Then there are Government measures providing for parental leave, changing the way holidays are paid for and increasing minimum wages which will also increase costs.

Business New Zealand calculated earlier this year that the combined effect on a medium-sized business would be to add $26,398 in costs over the three-year parliamentary term.

None of those costs was due to tax increases - but that does not make them any more palatable to business.

The Government may yet have another tax up its sleeve. In a speech last month, Finance Minister Michael Cullen said he hoped to be able to use the Budget on May 23 to detail plans for a possible change in the way some investments are taxed.

The McLeod tax review committee last year recommended applying the "risk-free return method" to tax "savings and investment entities" and overseas shares and unit trusts.

That approach would assume that certain investments earned a particular return and tax them accordingly, regardless of the actual return. The impact remains to be seen.

Feature: The $1 billion question