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Company tax cuts would lift kiwi battler spirits

Media statement Monday, March 1st, 2004

Company tax cuts would lift spirit of kiwi battlers

The best thing Government could do to give low and middle income kiwi battlers a break would be to cut their company tax rates, the Employers & Manufacturers Association (Northern) says.

Alongside the Budget relief telegraphed for other low and middle income earners this year, cutting the tax rate on the first $38,000 of a company's net profit would lift investment and maintain job security," said Alasdair Thompson, EMA's chief executive.

"The same personal tax rate (currently 19.5 cents) on earnings up to $38,000 should be applied to companies as it is to individuals," Mr Thompson said.

"90 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 by such a move.

"The average incomes of their owners are no greater, and often less than the average wage.

"Cutting the company tax rate for the first $38,000 of net profit would do more to shore up business and consumer confidence than legislating for another round of wealth redistribution.

"In the UK this approach has been adopted very successfully. For smaller businesses there (those employing less than 50 staff and/or earning less than 2.8 million pounds) the first 10,000 pounds of a company's net profit attracts zero tax; 19 per cent is levied on net profit up to 300,000 pounds.

"The same approach in general is adopted in Canada, Ireland, Australia and elsewhere.

"New Zealand's company tax rate is the highest in the OECD and the Asia Pacific region, a factor holding back our ability to attract and retain investment, jobs and earnings.

"Business is becoming alarmed at the lack of investment going to new production capacity; the great majority of it is going into passive assets such as housing.

"To become attractive to investors again, we have to aim to reduce the company tax rate over time to 20 cents in the dollar. A first step in the forthcoming budget would be to align it with Australia's rate of 30 cents, then 28 cents, the level Australia has signaled it's rate is shortly heading.

"Treasury may quibble that any cuts to company taxes will reduce Government revenues, but its modeling fails to recognize that a lower company tax rate results in an equivalent reduction in the imputation tax credits passed onto shareholders, which increases their corresponding tax liability.

"Treasury also works from a static economic model that doesn't calculate benefits from policy changes leading to higher output and wages in an expanded economy with a broader tax base.

"As growth slows in this downward leg of the economic cycle, cuts to the company tax rate in line with the large majority of our trading partners would shore up business and consumer confidence, and give heart to the thousands of kiwi battlers running their own businesses."


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