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ACT's The Letter - Monday, 22 September 2003

The Letter

Monday, 22 September 2003


The government has produced a “Making Tax Easier for Small Businesses” discussion document - yet more talk. Proposed is a tax concession to use PAYE agents. As there are good, cheap software programs, paying PAYE is not a problem. There is a risky proposal that small businesses use their GST to calculate their provisional tax. What about zero rated services and items exempt from GST? If the IRD demands ‘use of money’ interest on the difference between the provisional tax paid and the tax owed, small businesses will be worse off. There is also provision to allow more frequent payments of provisional tax and a measure to encourage new businesses to pay provisional tax in their first year – useful but minor.


What causes small businesses to fear the IRD is not PAYE or provisional tax calculations; it is the IRD’s inflexible savage penalties. The imposition of ‘use of money’ interest rates and penalties on innocent mistakes and the strain and the compliance costs of an IRD audit that goes back three years. It gives state power new meaning. The IRD is the No. 1 risk in business. The No. 1 reason for bankruptcy and the No. 1 reason people leave business. An audit that lasts over 18 months is an experience many decide they just do not want to repeat.


A government that really wants to cut compliance costs would look at the real issues: employment law, OSH, ACC, RMA, and local body regulations. Real tax reform needs the assistance of the country’s accountants who do the IRD’s work. There is something rotten about a tax system that can ruin an honest hard-working taxpayer for an innocent mistake. The IRD’s discussion document is on ACT’s site:


Dr Arthur Grimes, Waikato University and Motu Research economist, has written an important paper on tax for the Ministry of Economic Development. The paper has just been published in the latest issue of New Zealand Economic Papers. His analysis questions the view that it’s the size of government that matters for growth and instead points to the design of the tax system. Then he says NZ’s reliance on income tax may be damaging growth. Grimes finds that the size of the NZ government may be lowering annual growth by up to half a percent - actually that’s a lot. NZ collects 18% of tax revenue from income tax; the OECD average is 14%. Grimes says that lifting the ratio of direct taxes to indirect by 10% decreases per capita income by 3.3%. He points out that what government spends tax revenue on affects growth; on welfare; it’s negative, on infrastructure and education, it’s positive. The paper is at:


Speaker Jonathan Hunt is off on a Speaker’s trip to China where the Speaker is held in proper respect. Previous Speaker’s trips are famous for their state progression around the globe but this trip is just two weeks. This is because Hunt has promised Helen Clark that he will always preside over question time.


“The curious incident of the dog in the night-time” – “The dog did nothing in the night-time”, “That was the curious incident” (Sherlock Holmes). Helen Clark has no respect for Westminster parliamentary democracy. Ann Hartley’s appointment as Deputy Speaker showed the same contempt for parliament as Caligula appointing his horse a consul in the Roman senate. When Winston Peters made his over-the-top and completely out-of-order attack on Hunt on Wednesday, curiously, Helen Clark sat immobile in her chair. Any other PM would have vigorously defended the Speaker. Clark either can’t or won’t put up a fight in the House.


Ministers this week were refused speaking rights at the Northland hui, but on the same day Ministers refused to attend the Foreshore, Law and Politics Conference at parliament. The difference? The Conference at the Beehive is not just for Maori. Another difference is that there are speakers of international renown able to intellectually challenge Labour’s proposals. Brian Lee Crowley from North America will challenge the whole concept of the ‘public domain’. Crowley says if an asset has no owner, then wasteful use is the result. “...the owner has a powerful reason to devote considerable time and attention to finding these more valued uses...society gets its natural resources efficiently...ill-defined or unenforceable property rights allow people to divert the resources to less valued uses”. Register at


Labour pushed its Supreme Court Bill through committee. It’s a big step to the Wilson vision of the Socialist Republic of Aotearoa. You can download the petition forms for a citizens’ initiated referendum at


No country is more affected by the failure of the world trade talks at Cancun. Significant concessions on agriculture, worth much to NZ and the third world, were offered. The round may yet succeed, but maybe not for years. ACT moved for a special parliamentary debate asking what is the government’s Plan B. Every other Cairns group country that has not joined the G21 group has either a free trade agreement or its promised prospect from the USA. Neither of the two old parties has a Plan B because neither will face up to telling the public that the ban on nuclear ships is very expensive ‘gesture politics’. Labour has also failed to explain why NZ turned down the chance to join the G21. The Cairns group with only six countries out of 140 is now irrelevant. Labour says – “We could not abandon the Aussies”. Didn’t the Aussies abandon NZ in their free trade talks with the US? When have we ever been more isolated?


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