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Spending restraint welcome but higher tax not

Media release

25 June 2014

Spending restraint welcome but higher tax not

Labour’s signals of more discipline in spending are welcome, but its higher tax proposals are concerning, says BusinessNZ

Commenting on the alternative budget released by Labour today, BusinessNZ Chief Executive Phil O’Reilly said its costings and commitment to frugal spending would be welcomed by the business community, although he cautioned that some of the costings had been heavily qualified by economists involved.

“Labour’s proposal for a firm approach to tax avoidance by multinational companies is sensible in the interim while international measures to harmonise international tax law are being worked through,” Mr O’Reilly said.

But the centrepiece of the alternative budget – an increase in the top personal tax rate and trust rate to 36 percent – would not aid competitiveness and would penalise those who tended to invest most.

“Higher income and trust tax along with a new capital gains tax are not good signals for anyone wanting to invest in New Zealand’s growth.”

He questioned whether the proposed capital gains tax would raise much revenue, given the proposal included the ability for losses to be offset against capital gains.

He said the proposal to abolish the current targeted R&D funding regime and reinstate general R&D tax credits was surprising given the distortions arising from their past use in other countries.

“General tax credits for all business bring an incentive to claim credits for spending unrelated to research and development, diminishing the amount actually spent on R&D. Targeted grants based on company performance and co-investment are a more transparent form of assistance.”

Another feature of the alternative budget – the proposal for the government to build and sell 10,000 homes every year – would be an unwelcome intrusion of government in the private sector, Mr O’Reilly said.

“The key problem here is local government zoning decisions restricting land supply and pushing up prices. A better intervention would be to require better zoning decisions by local government.”


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