Finance Minister Michael Cullen has seized on the Herald's Mood of the Boardroom tax poll to argue that cutting the corporate tax rate would not immediately see a lift in productivity.
The poll out today found that if there was a corporate tax cut:
* 65 per cent of CEOs would use it to pay staff more
* 91 per cent of them would use it to retain earnings for investment
* 64 per cent would increase dividends
Dr Cullen, speaking at a breakfast launch this morning attended by some of the main business leaders of New Zealand, said: "What I draw from this survey is that New Zealand business people remain pragmatic, focused and, most importantly, committed to realising the long-term potential of what is, in comparative terms, a strong and competitive small economy.
"One of the more interesting results of this survey is that around 90 per cent of CEOs stated they would respond to a cut in the company tax rate by retaining earnings and reinvesting, but that 65 per cent stated that they would increase pay rates and 65 per cent stated that they would pay larger dividends.
"That of course is their prerogative; but it does suggest that a significant portion of the lost revenue from a straight reduction in the company tax rate would flow through to employees and shareholders, rather than going immediately into investments that increase productivity.
"For those who argue for deep cuts in the company tax rate as a symbolic gesture, one needs to ask whether more tightly targeted measures would actually represent more productivity bang for the buck.
"What we are trying to do is grow the cake. National would rather cut it up and distribute it through multi-billion dollar personal tax cuts. That approach failed when it was tried in the 1990s, and there is no reason to believe it might succeed now."
Dr Cullen, who launched the Business Tax Review last month, said that the economy suffers from cycles of restraint followed by loosening of the purse strings. He said the Government was committed to changing the parts of the business tax regime where there was a link between increased productivity and economic growth.
"We need to get the best bang for our buck in terms of encouraging investment where it is needed most, namely research and development, workplace skills and export market development.
"The headline rate is certainly on the agenda. But that is only one aspect of a range of measures that constitute the biggest review of business tax rules in nearly twenty years. All up, the options total nearly two billion dollars a year.
"That is why I think it is significant that 85 per cent of CEOs supported changes to R&D depreciation as a means of increasing incentives for productivity. Research and development is one activity that the tax system could encourage. So too export development and building workforce skills."
Dr Cullen said the Government was willing to forego revenue as long as there was a demonstrable flow-on benefit.
He also used his speech at the Carlton Hotel, Auckland, to point to Labour's record of increasing investment in infrastructure, especially land transport, public transport and double-tracking Auckland's rail system.
He said that the electricity regime had failed to deliver lower prices and sensible investment. "Further weaknesses have been revealed in recent months, in particular a tendency to focus on cost issues without much reference to the broader economic significance of security of supply," Dr Cullen said.
"That is why yesterday we changed the brief of the Electricity Commission to make it clear that its decisions should be based on broad economic benefit, and should promote confidence within the business community, rather than merely focusing on the cost side of the equation."
- NZHERALD STAFF
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