Missing the main point on the Australian tax revie

Missing the main point on the Australian tax review

The government and many commentators are missing the most obvious point about the Australian government’s tax announcements yesterday, says CTU Economist and Policy Director, Bill Rosenberg. “The main point is that the Australian government is boosting the effective wage packages of Australian workers by 3 percent in a way that benefits both workers and the Australian economy. It is doing it by increasing the compulsory employer contribution to their employees’ superannuation.”

Not only will workers in a few years have regular contributions of 12 percent of their ordinary time income added to their retirement savings but the Australian economy will benefit from the continued growth of the huge investment funds that are being built up from these savings. These funds are available to boost investment and productivity in Australia. As an effective addition to Australian wage packages they will attract more workers from New Zealand.

“It is high time the New Zealand government broke out of its ‘tax cuts’ alleyway which only leads down the 1990s path of an incapacitated state focused on saving money rather than assisting its citizens and the economy. It should be looking at direct ways to add to wages if it is serious about catching up with Australia. That would also give employers an incentive to increase productivity”, said Rosenberg.

“Instead there has been a fixation on a reduction of the ‘headline’ standard company tax rate in Australia from 30 to 28 percent. Even that reaction is flawed. Not only is that cut delayed but offset by a large increase in company taxation on resource companies.”

Rather than a knee-jerk “must match Australia” response, we need to look deeper, he said.

New Zealand in fact has one of the lowest total corporate tax takes in the OECD. It has few corporate taxes other than company income tax, the ACC levy and local government rates. According to a recent study by PricewaterhouseCoopers and the World Bank, Australia's current "total tax rate" for companies is 48 percent of profits; New Zealand's is 32.8 percent. We have the 7th lowest rate in the OECD. According to one Australian business commentator, some companies are subject to more than 50 state and federal taxes. The 2 percent Australian cut is a minor factor if companies look at the whole tax picture. Indeed, New Zealand had a higher company tax rate during the 2000s at a time when there was considerable Australian investment coming into New Zealand.

Because of imputation, there is in effect no corporate tax from the point of view of New Zealand shareholders and the total tax take. Reducing the company income tax rate largely benefits foreign investors. Cutting the headline rate further is unnecessary in reducing corporate tax burdens and shifts the tax burden further onto employees.

The Australians also rejected an increase in GST from its current 10 percent level.

“The Australian tax review shows the shallowness of the tax review here in New Zealand which ignored issues of superannuation, inequality and wages”, Rosenberg concludes.

ENDS

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