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Call for cut in the corporate tax rate continued

Media Statement
For immediate release

Wednesday 19 November, 2003

Copeland continues to call for cut in the corporate tax rate

United Future revenue spokesperson Gordon Copeland is continuing to urge the Government to cut the corporate tax rate from 33% to 30%.

“In this regard our policy is in line with that of the National Party,” he says.

“National has stated that their reason for proposing this is to bring the New Zealand corporate tax rate into line with that of Australia. Although I agree with that, there are two additional reasons why United Future believes that the rate should be cut.

“The first of these has to do with the cost of capital. Investors assess their cost of capital after tax and accordingly any reduction in the corporate tax rate will automatically lead to a reduction in the cost of capital, i.e. the investment return which, allowing for the risk concerned, people will want to reactive if they invest in that particular industry or company.

“Because interest rates in New Zealand are among the highest in the world and the 33% rate is above that of Australia, the cost of capital in New Zealand is higher than it needs to be. In simple terms, that means that international investors will be attracted to Australia instead of New Zealand because the tax paid on a company’s earnings are lower.

“In addition the 30% rate creates a positive incentive for New Zealanders to retain earnings within businesses rather than withdraw them by way of dividends. This is because the personal tax rate is 39% so at 30% rather than the present 33% an additional incentive is created to build the capital base of the business.

“This in turn creates jobs and provides an important stimulus to economic growth.”

Ends.

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