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Just asking

Written By: - Date published: 10:40 am, December 11th, 2009 - 9 comments
Categories: class war, tax - Tags:

It has been treated as gospel that if the Australians, for inadequately explained reasons, drop their corporate tax rate from 30% to 25%, then we, for inadequately explained reasons, will have to follow suit.

Why?

Where is the proof that the $900 million a year that cut would cost us is justified? Did the economy fall apart when we had higher corporate tax rates than us for most of the last decade? Do the Aussies feel compelled to cut their top income tax rate from 45% to 38% to match ours for fear of losing their ‘best and brightest’ to our shores? Where is the proof that this would be a better expenditure of money than, say, giving every New Zealand taxpayer their first $2,500 of income tax-free, which would cost the same amount? Where is the proof we wouldn’t be better off spending that $900 million a year on green technology and infrastructure, or on health, or on education?

Why should we take it on faith that the corporate rate must come down if the Aussies drop theirs or, for that matter, that revenue raised by a land tax must go to cutting income taxes for the most well-off?

Why isn’t anyone asking these questions? Why in their otherwise excellent, informed, and intelligent pieces on tax reform do Vernon Small, Fran O’Sullivan, Rod Oram, and others fail to challenge the core assumption – that the benefits of tax reform must go overwhelmingly to the wealthy. Why don’t they ask ‘why’?

9 comments on “Just asking”

  1. snoozer 1

    Marty, don’t you know by now? Premises never get questioned by the media, they are just blindly accepted as truth.

  2. Bored 2

    Ask who benefits? Yes that same group who also by rare dint of coincidence also own the media (you have to believe these guys though because they really are so disinterested). Let’s face it, when there is a buck to be gained from tax, the facts, the truth and fairness come a very poor second.

  3. Our tax rates are low by international standards.

    It makes you wonder. Perhaps countries with well educated and healthy citizens and properly funded infrastructure function better?

  4. Clarke 4

    If the logic of alignment with Australia made any rational sense, we would have raised our compulsory superannuation contributions to 9% of our take-home pay by now.

  5. ieuan 5

    The business tax rate does not just affect ‘corporations’, the vast majority of businesses in New Zealand are small, 10 or less people.

    Taxing business profits essentially taxes the money that is left in the business that would otherwise be used for funding growth, paying back debt etc.

    Money that is taken out of the business (dividend, wages etc) is then taxed as income at the ‘normal’ rates.

    In a nut shell the reason the government want to align the Australian and New Zealand rates is to stop the drift of companies to Australia, attracted by a (potentially) lower tax rate.

    • lprent 5.1

      Most of the ‘analysis’ focuses on the headline rate, and has a tendency to ignore the multiple layers of taxation. For instance state taxation in aussie. Higher admin costs with the less comprehensive GST. etc etc

      Various businesses I’ve been associated with have looked at setting up operations in aussie. They’ve usually balked at the higher rates of effective business taxation. You can get around a lot of it with a good enough accountant. But that usually costs as much as you save.

      The effective rates of tax combined with the tax compliance costs for businesses in aussie are somewhat higher than they are here.

      • Rex Widerstrom 5.1.1

        Yeah compliance costs are high and tax law is even more hellishly complicated than is NZ’s. And I’m not a tax lawyer I just run a couple of small businesses.

        But it seems that one of the reasons for the complexity is that Australia aims to target deductions to those who need / deserve them, ranging from business people to low income earners.

        One example: starting a fledgling business I was delighted to learn that it’s paltry earnings in the first year meant I got an “entrepreneur’s allowance”.. not much, but in an environment where no one is a venture capitalist it was nice that the Australian government recognised I was giving it a go.

        Unless you’re making or retailing food or something the GST exemptions aren’t a huge issue. I do my own accounts, use the ATO’s own accounting software (admnittedly fairly rudimentary, but free and tailored to their reporting requirements) and their online lodgement tool which “interviews” you to help make sure you get your taxes right.

        Of course bigger businesses would have much larger compliance costs, and state taxes are a pain, especially when they’re wasted by incompetent state governments.

        But I don’t think it’s quite as clear cut as the impression you’ve been given Lynn. Inertia plays a big role in these decisions, whether acknowledged or not. Easier to stay with the status quo unless pushed.

        And a higher corporate tax rate could well be that push…

    • snoozer 5.2

      wouldn’t they be attracted to NZ by the fact that we’re one of the easiest countries in the world to do business? Way ahead of Aus.

      And it’s simplistic to look just at the corporate tax rate. There’s payroll tax etc.

  6. ieuan 6

    I think one of the reasons companies would rather be based in Australia than New Zealand is they would prefer to be listed on the Australian stock exchange rather than the New Zealand one.

    Our stock exchange is a joke, when did we last have a substantial new listing?

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