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Better than nothing

Written By: - Date published: 2:37 pm, February 4th, 2009 - 28 comments
Categories: economy, national/act government - Tags:

I’ve just had a read of John Key’s speech today announcing measures to help small and medium businesses through the recession. And my first reaction is ‘that’s it?’

5% less provisional tax, whoopie. At the end of the year you get back any excess you’ve paid or have to pay any underpayment. At the end of the year you end up with the same tax bill regardless. You just get to hold a little bit of money a little longer. So, the value of this change is only the interest on the 5% less in provisional payments for, on average, half a year. What’s that going to work out at? Something like (30%x5%x4%) 0.06% of profits. 

A few percent off the use of money interest rate, having to do PAYE once a month rather than twice for a few more businesses, more tax deductibility for legal expenses… expanding the Export Credit Scheme looks like a good idea but it’s still a pretty small move in the scheme of things.

I don’t think that expanding the Disputes Tribunal’s jurisdiction from $7,500 to $15,000 ($20,000 with parties’ consent) is going to set the economy on fire either. And one has to wonder whether they will see allocating more funding to the Tribunal so it can hear the extra cases without creating a bottleneck. Key makes no mention of doing so.

All up, these changes are meant to inject maybe a couple of hundred million a year into the economy, 0.1% of GDP, $30 each.

It’s not that these changes are ‘bad’, it’s just that they’re ‘so what?’. It’s like they asked some business owners for a list of minor (and cheap to fix) niggles rather than set out to develop a major plan. Still, at least they’re actually doing something. But it would be nice to see the Government take the bull by the horns, rather than fixate on small beer.

28 comments on “Better than nothing”

  1. cocamc 1

    Steve, these are important steps for small businesses so lets recognise that it will assist us and cut down on a lot of compliance costs. So we can then use those saved compliance costs to funnel into growing our business.

  2. gingercrush 2

    But it would be nice to see the Government take the bull by the horns, rather than fixate on small beer.

    What you mean do a huge stimulus package like the Obama administration and getting New Zealand further and further into debt?

  3. lew 3

    This is high praise from you, Steve.

    My impression as well: how does this cost $480m?

    L

  4. tsmithfield 4

    These are small but important steps. It is fairly clear that there will be more announcements coming with infrastructure, jobs summit etc.

    The govt has already done a bit with more tax cuts coming, transitional relief package etc.

    I think it is wise not to rush in to committing NZ’ers to huge amounts of debt without having thought things through carefully to ensure we are getting the best bang for our buck.

  5. BLiP 5

    Yeah – what a let down – after the indolent and compliant media built up this mighty announcement it turns out to be cold fish and chips with no tomato sauce. Where’s the meat? Where’s the leadership to bring the nation through the economic crisis? I mean, why not throw off the mask of Mr Nice Guy and just get on with the neo-liberal agenda with big, bold moves? Not that they would do any good or make things better and would probably bring the protesters out into the streets, but at least you could respect his cajones.

    Instead, we get Goober John Key tinkering about the edges like a home handyman who doesn’t know what he’s doing.

  6. Billy 6

    Anyone who is self-employed will tell you that managing prov tax is a nightmare. The assumption that, year on year, a taxpayer will make 5% more than he or she did the year before is illogical and the whole system is particularly hard on those with “lumpy” income. I do not know what the package does to address this but I hope it is meaningful.

  7. ak 7

    Gee whiz. Scintillating stuff.

    Sooo….a wee bit less work for accountants (reckon they’ll drop their charges to SMEs? hardy har har..) and, wait for it…… more bureaucrats for the Disputes trib and business advice!!!!!

    Kumbayakey – leadership for the whole family to smile along to.

  8. TightyRighty 8

    National took the bull by the horns with the 90-day bill, and you lamabasted him for doing so. National now implements some more changes so that SME owners and managers can focus on making money rather than compliance and you say they aren’t doing enough. sounds a bit like Phillip seesmoreghosts Goffman wrote this.

  9. burt 9

    So if the govt had added 5% to the prov tax payments would we still call it small beer?

  10. Aj 10

    Labour made the real tax changes to business in it’s last term. National can only tinker at the fringes and make big noises. Let be clear, this is spread over ..what, 4 years? small change, and for many many businesses this will barely have any effect.

  11. Matthew Pilott 11

    SP, I’m going to disgaree with you somewhat, because there’s something about provisional tax you’ve missed.

    As I understand, you pay it up front, and then get charged extra or reimbursed at the end of the tax year. A reduction in the amount you need to pay upfront could have a good effect on business cash flows – more cash in hand. Hell, it might even cover a 50 cent min wage increase.

    Given consumer spending is down, a reduction in tax take is likely, so reducing the amount paid upfront isn’t a bad idea – they’ll be likely to pay a more accurate amount and have the money now, not a refund in a years’ time.

    It’s not huge, but not a bad idea. In times of growth it could put businesses out badly though, and they’d end up paying large amounts they didn’t budget for, so a smart thing to do would be to try and tie it to growth forecasts, instead of having set levels. Not sure if there’s a reason that couldn’t be done, apart from lack of imagination.

    Burt – are you just being contrary for the sake of it? I don’t see the point to your comment – it seems you don’t understand what the tax is. Answer yes, point irrelevant.

    TightyRighty – the 90 day bill had nothing to do with the recession, it was something they’ve wanted to do for years.

    Defend National all you want, but you’re struggling to make a hillock out of a molehill

  12. burt 12

    Matthew Pilott

    Burt – are you just being contrary for the sake of it? I don’t see the point to your comment – it seems you don’t understand what the tax is. Answer yes, point irrelevant.

    I can assure you I know more about the tax changes than most people commenting here do…. Prov tax and it’s administration is a special interest subject of mine. 🙂

    lprent might want to confirm from my IP (although I would rather he did not publish it) that I’m not talking through a hole in my head as some people here certainly are.

  13. i have to pay provisional tax and if your income isn’t growing the 5 percent is a tiny pain in the arse, but if it grows faster than that = minor win…

    tighty. don’t give me that rubbish a) the fire at will law is not a reaction to the crisis, they first tried to pass it in 2006, and the law we have is a weakened version of that outragous original bill.

    b) doing somthing does not mean doing just anything – i want the government to react with good policies, not bad ones like fire at will

  14. Anita 14

    How about an R&D tax credit? 🙂

  15. burt 15

    Matthew Pilott

    so a smart thing to do would be to try and tie it to growth forecasts, instead of having set levels. Not sure if there’s a reason that couldn’t be done, apart from lack of imagination.

    You should read up about the ratio option for paying prov tax. It kinda hits all the buttons you highligh in your last post.

  16. TightyRIghty 16

    The fire at will bill will be an important step in restoring confidence among employers in the job market. though im foreseeing the unemployable will still be unemployable, due to all the more-employable people now fronting on the job lines. The government is reacting with good policies, well thought out reasoned polices. not just running around like a headless chicken a la G-Brown, saviour of the free world.

  17. Jum 17

    Yet another case of taking the praise for something Labour had already done the groundwork on – disputes tribunal increase.

    These NActM’s are getting all the kudos for Labour initiatives and programmes already in place.

  18. Jum 18

    TightyRighty
    Small business was standing back and watching the economy, keeping their staff on. The Employers’ Federation does a little group visit to them and suddenly staff are being laid off en masse. This bespeakes the plan of cheap desperate labour that Key et al had envisaged for their plans to lower wages. Nasty.

  19. Pascal's bookie 19

    Hi burt. I know how much obeying the letter of the law and ministerial probity means to you, so I’m interested in your thoughts on Rodney advising a business to avoid the law.

    Asked again if he was advising Mr Bull to break the law, Mr Hide replied that since he had been on TV the council might frown upon it, but he personally would take issue with a council for “running over this guy”.

    Do you think Key should sack him as minister for local government?

  20. TghtyRighty 20

    RIghto Jum, whatever you say. at the flick of a wrist the employers federation have managed to lay off masses of employees. man that kind of power must be intoxicating for them.

  21. tsmithfield 21

    A lot of these changes are very welcome to small business people like myself. Anything that reduces the amount of government interference in business is a good thing.

    Some of the moves don’t actually cost anything yet make some difference. For instance, instructing government departments to pay promptly is a very good thing for general cashflow considering that some departments are very tardy in this respect. Having the cheque earlier certainly helps the money-go-round.

  22. Mike 22

    Interesting nugget in Audrey Young’s Herald spin job.

    After the speech, it took some time to find some business operators who would actually be affected by the announcements – the lunch has a large number of local bureaucrats, accountants and lawyers (including Clint Rickards)

    So the sub-Prime Minister is happy to share lunch with a scumbag like Rickards?
    That’s not change we can believe in.

  23. burt 23

    Mike

    I find Audrey Young’s comment quite interesting; “After the speech, it took some time to find some business operators who would actually be affected by the announcements”

    That is spinning it isn’t it. She’s saying perhaps it took a long time to find a business operator who pays provisional tax? The threshold lift for needing GST registration implies she wasn’t talking to any part time contractors or cottage producers. She was talking to people who have suffered high interest rates for underpayments.

    Who was she talking to? Perhaps it was only people who had no real world experience of what the announcements were about so they bagged them.

  24. Jum 24

    TghtyRighty
    How naive of you. How easy it is for a group of people who espouse their expertise in the matter of employment to sway those small/medium businesses worried about the future to drop their employees. No doubt there would have been a few whispers that the ‘stock’ market of people would be far more malleable under the 90 day law.

    Don’t you remember the piece in the Herald stating that small business was playing the wait and see game, keeping staff on, but by the time the employers federation had finished its 3-week stint of visiting these businesses suddenly employees are being laid off. How convenient…

  25. burt 25

    Jum

    Could you please explain how you think a recent employers federation visit had an impact on unemployment data collected in December last year?

  26. Felix 26

    That’s a good question burt.

    Pacsal’s bookie, above, has a good one too.

  27. Billy 27

    I have to pay provisional tax and if your income isn’t growing the 5 percent is a tiny pain in the arse, but if it grows faster than that = minor win

    14% use of money interest constitues a minor win? Does this display the confidence you have in the Government’s ability to apply that usurious interest to improve the lot of the most vulnerable members of our society?

  28. TightyRighty 28

    Yea Jum, what burt asked. answer cogently and you might just realise that i am not naive, rather more aware of what is happening in the small to medium business environment than you would give me credit for.

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