Tax reform is long overdue

Phil O'Reilly

Business NZ chief executive Phil O'Reilly says the Mood of the Boardroom confirms the undeniable fact that New Zealand companies of all sizes could compete and grow better with a better tax system.

He points up some key differences between the way smaller NZ companies view Government policies compared to their larger counterparts.

"This year the difference is evident in responses about tax," said O'Reilly.

The corporate tax rate was rated as the lowest of 11 concerns for small and medium sized companies - behind issues such as petrol costs, inflation, roading and exchange rates - in Business NZ's analysis of responses to surveys sent to its membership.

Petrol prices and road congestion were more 'in your face' on a daily basis and could be expected to rank higher as a concern among SMEs than tax rates.

O'Reilly contends the low corporate tax rating is interesting in light of the Government's Business Tax Review proposals.

"Because the review relates to corporate tax only, the proposals have no relevance to many small businesses," he said.

"The review therefore fails to address the over-taxation of thousands of firms that pay tax at the top personal rate of 39 per cent.

"Reducing the business rate to 30 per cent will not help them. A more integrated solution - of both business and personal taxes - is required."

The Business NZ chief executive makes the point that for large companies, the corporate rate is vitally important. A reduction in the corporate rate to 30 per cent is not a particularly bold step to them. Australia could outflank NZ by reducing its rate below 30 per cent before the Dunne review is even finished.

The importance of lower business tax to larger companies is clearly captured in this year's survey. Asked whether they would invest more in their business if the corporate rate were cut, 81 per cent said they would.

Given that more investment is required for New Zealand companies to improve their assets, upskill, grow and export more, this response is telling.

"More than 80 per cent of large businesses reinvesting at a greater rate as a consequence of a cut in the corporate rate - this is a major outcome, and indicates the need for bold, not timid, reductions in business tax."

"An initial rate of 30 per cent would be useful as a first step only if there were further rapid reductions in the short term, and if consideration was given to alignment of personal and business tax," he said.

"Companies have suffered from our tax regime for too long. It has been nearly 20 years since the last reduction in company tax, and over that time the top personal rate has increased significantly.

"This contrasts with the overall downward trend of taxes in other developed countries.