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Marc My Words - April 2 2004

Marc My Words, By Marc Alexander MP, United Future NZ,

April 2004

Tackling Taxes

After such a positive response from the last 'Marc My Words' with feedback (and questions) from many of you, I am forging ahead with some supplementary ideas in an effort to clarify some personal views. As always, I am open to alternative points of view.

Business confidence is falling; retail business alone has dropped from 26% to 6%. It's falling not only because of external factors (such as the rising strength of our dollar), but also because of the raft of 'prosperity - unfriendly' policies advanced by the flock of bug-eyed socialists in the Labour Government who are hell-bent on clipping the capital earned from employee and employer alike. Let's look at the problems -

A recent KPMG global tax rate survey shows that the New Zealand corporate tax rate of 33% was not only above the average (30.37%) amongst competitors and markets in the Asia-Pacific arena , but well above the average (29.96%) of OECD and European Union nations with which our Prime

Minister Helen Clark urges us to compare ourselves. The result regrettably, is that we cannot compete effectively for overseas investment and attract our share of internationally mobile capital. That is costing us in economic activity; in our national earning capacity; and most important, in the creation of more jobs. The real value of wages in New Zealand is falling behind that of other countries. But, rather than raising that value by cutting taxes, this Government will 're-jiggle' distribution through raised benefits!

Theresult is a dwindling of incentive for employees, and also for employers to invest in expanding their businesses. But even worse, the tax-disincentives curb our capacity to be financially independent. The secondary tax rate is a prime example of a disingenuous discouragement to seek employment - it is a slap in the face of employees and is legalised 'theft' by the Government whose hand is uninvited in the bleeding pockets of New Zealanders. Moreover this restriction is exacerbated when hardworking employees with initiative are denied the ability to negotiate their own contracts without severe limitations. One such limitation, for example, is that which inhibits business from hiring senior citizens for mentoring roles which provide conditions mutually acceptable to both, but which may also contravene the Employment Relations Act.

This prohibition on incentive is not simply an encroachment of individual empowerment but is something I consider more sinister. It is not well appreciated that if employees are able to keep more of their earnings, they will have more freedom to take control of their own material lives.

While that may include the opportunity to make more decisions with regard to their resources, it also gives the opportunity to participate as an employer (albeit by proxy) through the share market. In other words, this Labour Government's persistence to marginalise employees and employers through a prohibitive tax regime, and by creating needs met through benefits (a ploy to court voter loyalty?), effectively suppresses the capacity for all New Zealanders to participate as owners of production via the share market.

Before I could be accused of being too market-driven, I must point out that no one, in all conscience, can deny the necessity to address social disadvantage. It is simply that in many instances, the scope of benefits can be counterproductive. For example, new figures show that the number of long-term DPB beneficiaries with six or more children has increased by almost 50%!

Now no one can deny that in to unforeseen and unfortunate circumstances protections for the most vulnerable are essential, but such safeguards should never contribute to a publicly funded lifestyle choice.

The Holidays Act sounds like a wonderful idea because it gives the impression that its provisions will be 'given' to the people of New Zealand at no additional cost. How foolish does this Government think the people of this country are? The practical legacy of this Act will be twofold; firstly, an increase in labour costs by providing more annual holidays, more sick leave and more bereavement leave. These provisions alone will add about $5 billion in costs. And secondly, a more insidious aspect is that employees who are regularly paid incentives, bonuses and productivity-based payments will have them included as a statutory right incurring an additional 50% loading on the compound rate! This is not only a nonsense but a penalty on productivity-based rewards!!

Some economic commentators (such as the erudite Rod Oram in the Sunday Star-Times of 28 March) miss the point when they attack what they call our business leaders' "obsession with cost control rather than value creation". While we should encourage the growth of value and sophistication of our products to earn a better living, we can only do so if we 'free up' capital by hacking into corporate costs such as taxes' and raising the consumption power of wages by a reduction in income taxes. The two processes go hand in hand.

Forever the optimist, I note that even the German socialists have finally realised the folly of their ways. On 1 January this year, employees received a massive tax cut - from 25.5% to 16% for the basic rate, to be reduced even further to 15% next year. While proportionately, those on low incomes will benefit the most, all income cohorts are being reduced. These changes reflect the experiences of other countries (such as Ireland) which clearly show that such cuts lead to additional economic growth and create jobs, leading to 'more rather than less money flowing into public coffers'.

Let's hope our Labour Government is listening to the lessons learnt from their 'pink' cousins in Germany, and to the business community in this country, - and heeding the desire of our families to be more empowered.

But the real issue, as I see it, is that this Government must wake up from its socialist day dream, and put its ideology to pasture long enough to stop treating business as a necessary evil but as the engine that can deliver prosperity and jobs for all.


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