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Business $1 billion worse off

Thursday, May 17th, 2007

Business $1 billion worse off

The Budget's 3 cents reduction in the company tax rate to 30 cents in the dollar is welcome but not bold or imaginative enough, says Alasdair Thompson, chief executive of the Employers & Manufacturers Association (Northern) (EMA).

"In fact, making employer contributions compulsory to KiwiSaver will cost companies more than the 3 cents tax rate cut they are getting.

"As National's John Key said, Cullen has taken $2 billion off business [for KiwiSaver] and given back $1 billion, most of it in the form of increased Government spending.

"The tax rate cut just regains a bit of lost competitiveness with Australia who got theirs (30 per cent) five years ago.

"We give a big tick to allowing $1.15 to be expensed for every dollar spent on research and development but most of the long list of extra Government spending would be better channelled into a bigger tax rate cut."

Mr Thompson says every time company tax rates have been cut in the past, the tax take from business actually increased.

"Overall, the Budget delivered a long list of increased Government spending rather than tax cuts."

For example, Government wants to tax KiwiSavers and then give them some of this tax back after it's gone through an expensive Inland Revenue bureaucracy.

A couple of these increases, eg, New Zealand Trade and Enterprise's $26 million a year are worthwhile.

"And there's nothing to improve the quality of Government spending or productivity in the public sector - just more highly paid staff and admin.

"Staff numbers in the sector have increased about 50 per cent and their pay has increased at a far greater rate then in the private sector for the past eight years - there's an army of people running around saying 'we are here to help you'.

"Furthermore, Aucklanders are effectively taxed more with up to 10c/litre petrol and diesel tax to fund transport projects."

The Budget has delivered $600 million over six years for the electrification of Auckland and Wellington rail.

EMA believes electrification makes long term economic sense.

"It is what Aucklanders have been waiting for and we will welcome it for its long term value even though the return on investment in the short term is not so great.

"The regional fuel tax is efficient compared with tolling at this point in time."

EMA welcomes the increased spending of about $21 million a year through New Zealand Trade and Enterprise on export market development, and help for exporters in those markets; and about $5 million a year for developing better export links with Asia.

The extra $90 million capital funding for spending on Industry Training Organisations, and $69 million for increased participation in industry training as part of the business tax package is welcome too.

"But this is not an imaginative, business or New Zealand success-promoting Budget. Finance Minister Dr Michael Cullen's vision is limited to that of a hoarder rather than an investor in growth," Mr Thompson says.


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