Govt urged to give small business a tax cut with costs piling up

Economist Cameron Bagrie Photo / Paul Taylor

New Zealand's small businesses are getting weighed down by costs and the Government should take a hard look at giving them a tax cut in next year's Budget, an economist says.

Former ANZ chief economist Cameron Bagrie said small companies are the key to the big economic transition Finance Minister Grant Robertson said New Zealand is going through.

"They're really going to have to step up. That's where we have to look to recharge the replacement sources of growth. I'm really interested in what the (Government's) small business advisory group comes up with and the 2019 Budget should be looking seriously to deliver a tax cut to SMEs. Australia is already moving down that track and has been for a while."

Robertson's office responded by referring to a letter he sent the Tax Working Group last month, asking it to look at the taxation of business.

The letter said the Government was interested in the group's finding that reducing compliance costs through the tax system would provide a better approach than a progressive company tax rate for small businesses, and would like the group to expand on what compliance-reduction options would be beneficial.

Minister of Finance Grant Robertson. Photo / Brett Phibbs.

Bagrie said small businesses were the backbone of the economy but were getting increasingly slugged by costs.

"They don't have the economic scale to minimise those costs. What we are seeing across this economy is a hell of a lot of costs getting whacked on businesses. Big business have the scale to absorb it.

"One dollar of additional cost to an SME is a lot more than one dollar of cost to a big business.

"There needs to be something major in the 2019 Budget that is focused on growing the pie. The 2018 Budget was decidedly light on that aspect."

New Zealand Small Business Network founder and small business owner Tenby Powell said the Tax Working Group seemed not to have accounted for SMEs "yet it is in this economy where real growth, including employment, is occurring".

NZ SME Business Network founder Tenby Powell. Photo / supplied

Powell is also chairman of the Government's Small Business Council but responded to Bagrie's call as the small business network founder.

"New Zealand's tax system is uncomplicated and adding in tax levels for different business sizes and stages adds complexity," he said. "However we need to revolutionise our thinking about SMEs — or MSMEs given most of them are micro, comprising sole operators or very small enterprises — and find ways to stimulate both start-ups and scale-ups.

"Tax incentives and scaling are levers that would stimulate greater investment in technology and people. Start-ups fill a pipeline of future potential and need nurturing.

"A tax common to all businesses is brutal on start-ups. Ditto on a scaling enterprise.
"It's scale that we desperately need to encourage in New Zealand. It is during this time that many fail."

Powell said a stepped tax system would add complexity but had the potential to stimulate growth.

He said a "pervasive" level of uncertainty plagued small business owners at the moment which was reflected in stalled growth plans.

Robertson has promised a "wellbeing" Budget next year.