Tax cuts urged to counter dollar

Cutting the corporate tax rate could help soothe the pain many smaller businesses are feeling with the high kiwi dollar, reports GRAEME HUNT.

The Government is under pressure to cut the corporate tax rate to compensate companies affected by the strong New Zealand dollar.

Herald surveys of SME heads and chairmen and chief executives of larger companies - taken before the Reserve Bank sought the power to intervene in the foreign currency market - list the strength of the kiwi and the corporate tax rate as major concerns affecting their industries.

Gallagher Group chief executive Bill Gallagher said his company anticipated the dollar would strengthen but the extent of the rise was a shock.

"The good news is that we moved to cover two to three years in advance - [but] next year is going to be very rough."

The head of New Zealand's largest company believes the current "extremes" will force companies to improve productivity.

The appreciating New Zealand dollar has savagely clipped the incomes for Fonterra's 13,000 dairy farmer shareholders, but chief executive Andrew Ferrier says, "it's not unhealthy for Fonterra to be staring down the shot-gun barrel of currency rates".

Stephen Kattan, general manager of Ludowici Plastics, said: "If they can't find time to lower the dollar then we should get tax cuts." Kattan is among a growing chorus of SME managers who consider the Government is out of touch with business. His company, part of an Australian operation, is based in Onehunga, Auckland. It is a net importer, employing 74 staff, and is doing well from the high dollar, but Kattan does not expect the good fortune to last.

"Business is getting tougher," he said. "The dollar is starting to affect it - it is good for me but not for my customers."

The corporate tax rate - with an average ranking of 6.7/10 - topped the list of economic factors which most concerned SME respondents to the chief executives' survey.

Following close behind were worries about the cost and security of power (6/10), the strength of the NZ dollar (5.9/10) and further interest rate rises (5.8/10). Inflation (4.9/10) and the current account deficit (4.5/10) brought up the field.

The Employers & Manufacturers Association (Northern), many of whose members responded to the survey, has since called for a major cut in the company tax rate in line with Budget relief signalled to other low and middle-income earners.

"The same personal tax rate on earnings up to $38,000 should be applied to companies as it is to individuals," says EMA chief executive Alasdair Thompson.

"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 from such a move ... The average income of their owners are not greater and often less than the average wage."

Ken MacKenzie, chief executive of Gore-based topdressing company MacKenzie Aviation, said compliance costs were growing when the farming economy was being hit by the rising dollar.

MacKenzie said although the meat price was holding up, there was a degree of nervousness in Southland over the strong dollar. This was eating into farm incomes and would affect the topdressing business.

He said the Government should be held to account over passing on costs to business. "We have got to have accountability over bureaucracy."

An importer/wholesaler said although his business appreciated a strong kiwi, generally most of its competition was importers. "So any gains are quickly negated ... From a currency perspective, we a seeking a stable dollar, with less monthly volatility."

Another pointed to possible flow-on effects: a glut of Japanese-import cars hurting new car registrations and the need for huge stock write-backs to affect the dollar's value.

But not all chief executives are quivering under the high dollar. Non-exporters do not see the strength of the kiwi as relevant and there are others who view the strong currency as advantageous and a reflection of the global standing of the New Zealand economy.

Ferrier, who shifted to New Zealand last year, said the exchange rate had also been a big issue in his home country, Canada. "The Canadian dollar got very weak to the US dollar so manufacturers got lazy," he said. "They took advantage of a weak currency and didn't focus on putting their R&D into productivity and new products."

Ferrier said the exchange rate had been an overriding concern, but he tried very hard to drive the business.

"I tried to use this mantra," he recalled. "We have to assume it's a dollar-for-dollar Canadian-US exchange rate.

"Now we'll probably never go there, but if you run your business that way then you're focusing on the right things."

Doug Heffernan, chief executive of Mighty River Power, said the high dollar was an asset to the energy business.

"Given the requirement for more energy supplies for New Zealand, fuel is a big issue - ironically, a high dollar is better for that."

Waste Management's managing director, Kim Ellis, said the high dollar helped his company.

"We do a lot of travelling and my issue is that I am only seeing prices going up."

A Wellington respondent to the Herald's corporate survey, who asked not to be named, said he was more concerned with the burden of regulation, tax and compliance than the strength of the dollar.

* Additional reporting Fran O'Sullivan