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Company tax cuts de-mystified

Media Release Monday, August 6th, 2001

Company tax cuts de-mystified

Misconceptions about the impact and equity of cutting company tax rates are obscuring the huge advantages contained in the proposal says the Employers & Manufacturers Association (Northern).

The association says an announcement from Government indicating it is prepared to keep an open mind on the issue would give credence to its Knowledge Wave initiatives.

EMA says the proposal is ideal for the New Zealand scale of enterprise.

In its second major submission the Association criticises the McLeod Tax Review Panel for not including an economic assessment of the overall impact of taxation on the rate of the nation's economic growth, or on the growth of New Zealanders incomes.

"Our submission states we want a tax system that is sensitive to our prospects for growth at the same time as ensuring it delivers 'a sustainable and continuous flow of revenue to meet Government requirements in the face of changing economic, social and technical conditions'," said Alasdair Thompson, EMA's chief executive.

"The Panel ignored the benefits of reducing the company tax rate.

"The arguments against cutting the company tax rate are poorly understood.

"One misunderstanding is that lower company taxes would only benefit the many thousands of small, and some larger company shareholders. Another is that cutting company taxes would diminish Government revenue reducing its ability to fund its social programme, or reach other objectives.

"These arguments are simply not true.

"Cutting company taxes merely defers the time when tax is paid until an individual shareholder receives the income from a business.

"Company taxes are pre-payments of taxes that individuals will have to pay at some time. They should be thought of like provisional tax, which is paid before a company's profit is later disbursed as dividends, and which then attracts personal tax.

"With significantly lower company taxes, companies would seek to re-invest more of their earning rather than pay them out.

"This is also the experience of other countries. By lowering the company tax rate, our companies would retain more of their profits for re-investing in jobs and in the skills and new technology that boost productivity.

"These factors result in a virtuous cycle with more income generated and more tax paid.

"The opportunity is that, with a lower company tax rate, more international businesses will seek to make New Zealand a place where they pay tax, not somewhere else. They would have an increasing incentive to invest here.

"The proposal would greatly help grow New Zealand small scale enterprises as well as attract direct foreign investment. (In 2000, 93 per cent of employers employed 49 full time equivalent employees or less.)

"We want Government to reconsider lowering company tax progressively over six years to 20 per cent. An announcement advising Government will keep an open mind on the subject would provide a big lift to confidence."

Further comments: Alasdair Thompson tel 09 367 0911 (b) 09 303 3951 (h) 025 982 024

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