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Business Tax Discussion Document

25 July 2006

Business Tax Discussion Document

The New Zealand Chambers of Commerce and Industry are encouraged by some of the options in the Government’s business tax review discussion document released today but advised bold decisions are needed if New Zealand is to move into the top half of the OECD.

“There are some positive measures on the table and it is pleasing to see the possibility of a reduction in the company rate. However a reduction of 3 cents in the dollar is not enough if we are to fully transform New Zealand’s economy or achieve the kind of productivity growth that both we and the Government are wanting,” said Director Charles Finny.

“The Government’s own analysis shows that while New Zealand’s corporate tax rate has been flat over the last two decades, the OECD’s unweighted average has been steadily falling and it is currently below 30%. We need to be below the OECD average if we are to maintain competitiveness. This reinforces the case for us to be looking at 25% rather than 30%.

Mr Finny also commented on the risks around reducing the company rate while leaving personal tax rates unchanged.

“Around 40% of businesses are unincorporated – for example as sole traders or partnerships - and would not benefit directly from reductions in business tax. The Government’s final decisions would need to take account of this.

“The document is negative about a payroll tax which is encouraging. A payroll tax would involve high compliance costs and be borne by employees through a reduction in post tax wages and lower employment than otherwise.

“In conjunction with other business groups, the Chambers had advocated a reduction in the top and middle personal tax rates to 28% and the company rate to 25% in two steps by 2009/10.

“We will be looking more closely at the document particularly at the tax base and compliance cost measures and making submissions in due course.

“As a general rule, we feel it is undesirable to favour some business activities over others but we will examine the types of measures being proposed. Likewise we have a general unease about export market development credits but we will study the design of such credits carefully. We’ve had them before and they haven’t worked that well. We also need to be convinced that we will not be breaching WTO rules or obligations,” Mr Finny concluded.

ENDS

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