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Mixed messages on business tax review

Monday, August 21st, 2006

Dr Cullen, CTU sending mixed messages on business tax review

Finance Minister Michael Cullen's comments on the business tax review are at odds with the CTU's call for businesses to pay higher wages, according to the Employers & Manufacturers Association (Northern).

Dr Cullen has repeated the results of a survey* which he says found 65 percent of CEOs would respond to a cut in the company tax rate by increasing pay rates.

"Dr Cullen is concerned that cutting the company tax rate would raise wages and salaries and he says the Government does not want that," said Alasdair Thompson, EMA's chief executive.

"The CTU wants Kiwi employers to raise wages and salaries but doesn't want cuts to the business tax rate to achieve it.

"Dr Cullen said his survey suggests '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.' *

"We fail to see this is a bad thing as Government tax revenues would rise faster than currently in subsequent years. Not only would much of the $540 million cost (from the 3 cent cut proposed) be clawed back as tax from staff and shareholders went up, it would gain more tax as a result of rising investment and economic growth.

"If the government was as enterprising as it expects Kiwi businesses to be, it would cut the company tax rate far more than 3 cents thereby encouraging overseas companies to account for more taxable profit here, while increasing their investment and the taxable income of their employees and shareholders here.

"The CTU says it prefers direct tax credits to encourage R&D, skills and market development, rather than cuts to the company tax rate.

"But a significant cut to the company tax rate would boost productivity by doing this while also raising wages and salaries."

* Speech by Dr Cullen in Tauranga, 16/8/2006


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