If the tax rate was slashed to 20% - the average across the Asia Pacific – New Zealand’s GDP would be $67b greater over the next 10 years, with an additional 27,765 jobs expected to be created.
Deloitte partner Liza Van Der Merwe expected the benefits to the economy to be felt more over time than in the initial years after a possible cut.
Finance Minister Nicola Willis wouldn’t shed more light on how serious she was about cutting the headline rate, versus making other tweaks to the system to support businesses and attract offshore capital to New Zealand.
While any tax cut would have a direct impact on the Government’s finances, Van Der Merwe believed the stimulatory effect of a lower corporate tax rate would, over time, see the Government collect more tax revenue than would otherwise be the case.
This said, she did not share a view on whether she believed the rate should be cut.
She also didn’t model what the overall impact of a lower corporate tax rate would be on the Government’s books, so couldn’t put numbers to her commentary.
The Crown collected $17b in corporate tax in 2023/24, the equivalent of 14% of its total tax take.
If the corporate tax rate was 20% in that year (and economic activity was the same as it was), the Government would’ve collected $5b less tax.
Of course, Van Der Merwe believed more economic activity would see people spend and earn more, and pay more taxes (like GST and income tax) accordingly.
Council of Trade Unions policy director and economist, Craig Renney, believed Deloitte’s numbers looked “heroic”.
“There is no Liz Truss moment where they’re going to slash the corporate tax rate and hope for growth,” he said.
He feared a lower tax rate would see firms come to New Zealand for accounting purposes, rather than to properly establish themselves here and create jobs.
Renney also questioned whether cutting the corporate tax rate was the best use of Government funds.
“The things firms really want are infrastructure, stable energy prices, a decent transport network, and skilled workforce,” he said.
Geof Nightingale, a tax specialist who used to be a partner at PwC and was part of the Government’s 2019 Tax Working Group, believed the Government could more effectively spur growth by making other tax tweaks.
Speaking to the Herald earlier this month, Nightingale noted it was unclear that cutting the corporate tax rate from 48% in the early-1980s had driven investment in New Zealand.
He recognised that internationally there was evidence of lower rates supporting growth, but many of the success stories involved exceptionally low rates, likely deemed unaffordable for New Zealand.
Indeed, Singapore and Ireland, which Prime Minister Christopher Luxon has been talking up as model countries, have corporate tax rates of 17% and 12.5% respectively.
Nightingale also believed it would be unfair for some overseas companies that make a lot of money from New Zealand to pay less tax.
He questioned how people would feel about ANZ’s $2b profit being taxed at a lower rate than is currently the case.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
