Lower tax rate urged for small business

By SIMON HENDERY

The Government is being called on to cut company tax for low-earning businesses, a move the Employers and Manufacturers Association (Northern) says would "give heart to the thousands of Kiwi battlers running their own businesses".

Chief executive Alasdair Thompson said that alongside the budget relief telegraphed for other low and middle income earners this year, cutting the tax rate on the first $38,000 of net profit would lift investment and maintain job security.

"The same personal tax rate (currently 19.5c) on earnings up to $38,000 should be applied to companies as it is to individuals. Ninety per cent of our small and mid-sized companies are owned by Kiwi battlers. Their companies earn net profits of less than $38,000 a year, and would benefit the most by such a move."

A similar approach had been very successful in Britain. The same general approach applied in Canada, Ireland, Australia and elsewhere.

"Treasury may quibble that any cuts to company taxes will reduce Government revenues, but its modelling fails to recognise that a lower company tax rate results in an equivalent reduction in the imputation tax credits passed on to shareholders, which increases their corresponding tax liability."

Ernst & Young tax director Michael Stanley said the proposal would have a big impact on Government revenue, given New Zealand's high number of small businesses.

While he agreed with the philosophy of lining up personal and company tax rates, the idea could be viewed as discouraging larger businesses, of which there were too few.