There is a lot of misinformation and misconception out there about NZ’s tax system, our rates, global competitiveness, competitive advantage etc.
What I will do is post a series of blogs outlining the myth and then give the reality. If people think this is worthwhile, or if you have ideas about other ‘myths’ you would like debunked or explained, please let me know.
Myth 1. New Zealand taxes corporate taxable income at a relatively high rate.
Reality. NZ’s company tax rate is 30%. This is lower than in the US, Japan, Germany, France, Canada, Korea, Italy, Spain, Belgium and Luxembourg. Not small backwater economies.! Its the same as Australia and the UK, and just fractionally above the EU average of 29.4%.
Also remember, we don’t have a capital gains tax, a payroll tax, stamp duty or a transactional tax, like a lot of OECD countries do.
Quite simply, our company tax rate is very competitive and uncomplicated.
Facts source OECD.
However what the left constantly fail to publish are the tax rates in countries such as Ireland (12.5%) Singaopre (18%) Hong Kong 16.5%, Vietnam 25%, Denmark 25%, Finland 26%, Sweden 26.3%. Asian Countries where our economic future rests and those wonderful socialist utopias, that so often has been held up as an example by the Labour Government.
I would prefer that we try and benchmark against the Asian countries of the future rather than the countries that you nominate above.
A restructure of our tax system is necessary to broaden the base so that 10% are not paying 76% of all income tax as noted by the TWG. But no problem – Labour may cry – but National will progress the changes and then NZ will reap the benefits.
Monty the 10% arent paying 76% of all income tax.
The TWG mislead by using that number .
You could easily say the sky is all ways blue , except when its cloudy.
The reality is that the top 10% earn the lions share of the income.
And the comparison with Australia they pay a similar proportion ( and earn slightly less share of the total income).
Oh dear….more myth busting busting to come I can tell….
The issue is not the NZ company tax rate as such it is the deductions and credits that these countries offer. Plenty of those countries listed as having supposedly higher corporate rates allow offshore structuring where income can be minimilised using various tax structures. Such keeping me gainfully employed.
New Zealand doesn’t allow much if any of that – you can thank Sir Roger Douglas for that ironically, when taxes were slashed and New Zealand switched to stricter worldwide source rules.
Next.
A good post Stuart.
I would like you you to expose the myth that property investments are open to special loopholes not open to ‘productive’ business. I have not heard many sensible comments from the media or MP’s, only Mark Weldon who wants to “level the playing field” (sic) by putting CGT on property, but not business or his precious sharemarket. (RFRR Pleaseee)
There are so many fallacies out there I can only see personal disaster for landlords (a lot being close to retirement) and tenants (who will end up paying all these taxes. And none of the proposals will stop the behaviour they want to stop.
Another big fallacy is that the TWG were experts on tax, when the most influential members either ran mutual fund companies, the NZX, were paid by banks or sit in ivory towers on a high income (a buffer to bad investments)
Reading a bit from Bob Jones lately and he makes one very perceptive point. While he believes in the pure free market (I don’t) he has seen it subverted by politicians, businesses, establishment families and lobby groups from a ‘naturally motivating human state promising the ability for anyone from any walk of life to aspire to and achieve goals’ (wealth, position, trophys) to become a purely economic theory where the point is the preservation of wealth for the few who hold it already.
Also when mentioning tax I want to know more from Phil Goff about removing the monetary policy agreement to encourage productive exporters. I see short term pain from this but also see it as essential and no discussion of our countries finances can be complete without understanding this.
So Cactus Kate, with the US offering so many deductions how do the middle classes feel about paying for the lifestyles of the truly wealthy- Oh thats right they just blob out in front of Faux news & stop thinking!
One thing NZ does have in its favour is, compared to a good number of other countries, the tax system is pretty simple. The legislation is pretty small. Simple and small means comparatively less red tape and less administrative costs.
It could be simpler of course. There’s still a lot of rubbish in there, and some sections of the population certainly get overtaxed.
Here’s Wikipedia’s list of tax rates. It doesn’t have the company tax rate in NZ as lower than US, Japan, Germany, South Korea, Spain or Luxembourg:
http://en.wikipedia.org/wiki/Tax_rates_around_the_world
Exhibit A – US
“According to published financial reports, Coca-Cola alone saved $500-million in U.S. taxes in 2003 through foreign subsidiaries. Its Cayman company controls syrup-producing facilities in Ireland. The subsidiary pays taxes in Ireland at 12.5 percent, still far less than in the United States”.
“As long as profits are not brought back to the United States, or “repatriated,” no tax is due. Federal law allows the taxation of “passive income,” meaning the interest earned on profits of those subsidiaries. But typically the companies reinvest the money elsewhere, Shackelford said”.
If NZ is taxing at 30% they will be taxing at a much higher rate than a US multi-national.
I take a high company tax rate and structuring opportunities over NZ’s 30% on worldwide income with limited loopholes any day.
Again ironically it was Roger Douglas who closed these loopholes.
The subsidiary pays taxes in Ireland at 12.5 percent, still far less than in the United States
And how’s Ireland making out these days?
Ireland , its sinking so fast, ironically its low tax rates mean the public take the hit.
Bet they blame it , like the potato famine on the ‘british’
Oh yeah the Irish are sooo stupid – take that aspiration! How dare they have the gall to try something different!
And while we are at it, gooooooooo average! Lets be average! That’s bound to be a winner!
While we are at it, lets all paralyse our decision making with comparisons that we then tear apart before we’ve finished making them, because everywhere is simultaneously the same and completely f*cking different! WOOOOO!
So thanks for “exploding the myths” Stuart. I note that you still haven’t answered the question I posed to your last posting – the one where you stated that:
“Labour’s bottom line is that any tax changes have to address structural issues in the context of broader economic and social goals.”
Again I’d LOVE to know what these goals are, since you portray them as the benchmark for your thinking here. Are they more “average”, “same but different”, and otherwise unaspirational stuff? Please, its the second time I’ve begged for enlightenment.
Baron: Not that the Irish are stupid more why would we want to follow models of government which mostly seem to be in decline right now. Also broader economic and social goals should be fairly obvious that we should be focusing on something more than growth of wealth in pure numbers. That the welfare of the majority of the population is considered in any tax changes.
Trevor: I would like the myth of our tax rates compared to Australia’s having some serious debunking since their level of wealth appears to be the governments goal and yet it adopts almost opposite policies.
Cactus, it would be foolish for New Zealand to design its tax system around the needs of coca-cola or any other global conglomerate. These companies are effectively sovereign states nowadays, and they pay tax on a voluntary basis. Are you suggesting that if NZ cut its company rate to 10 percent, coke would abandon Atlanta and move to Auckland?
Good point Jennifer. You have been away too long Cactus – we changed the tax law last year re payment of tax by NZ-owned subsidiaries (a Labour bill adopted by the government).
Cactus – if your role is exploiting ‘limied loopholes’, as you call them, for financial gain, then perhaps the HK system needs reviewing. The fundamental principle that I think most kiwis agree with is that one should pay their fair share – no more, no less. People who structure their affairs to avoid tax are only shifting the burden to those who haven’t then means or the wealth to undertake such operations.
Jeremy – will blog on this point re tax advantages of property over other investments.
Bea – you are right – we have a pretty simple tax system compared to most. My stats come from the OECD. Know that Wiki is good, but prefer to trust OECD at this point, but looking at the US system – federal, state, payroll, CGT etc etc. We have one.
Baron – social goal is social equity and fairness. Is that too much to ask.?
With regards to achieving social goals or a lest giving hints to what activities are good or bad why don’t we get rid of GST and return to the raft of varying sales taxes (environment/excise/ACC/value add etc). Is it just the administration cost or could this be simplified?
Ms Cactus provides an excellent argument for effective global regulation of business behaviour, which, slowly but surely, is coming.
“I take a high company tax rate and structuring opportunities over NZ’s 30% on worldwide income with limited loopholes any day.
Again ironically it was Roger Douglas who closed these loopholes.”
Not sure why you consider it ironic, Cactus. Roger Douglas’ intention was to close loopholes and lower tax rates. Remember Muldoon’s top tax rate? Remember the energy expended exploiting loopholes to avoid it? Far better to have small legislation, lower taxes and a lack of loopholes and convolution.
Jennifer and Stuart
Well I could provide about 20 other examples but I chose one as one of Clare’s rules is not to dominate the thread, I never used a NZ example because of what I said – NZ has few loopholes.
“it would be foolish for New Zealand to design its tax system around the needs of coca-cola or any other global conglomerate” – yes like Avatar then? And who would want a global conglomerate to set up more than a branch office in NZ anyway? What with all those jobs available and everything…
Avatar came to NZ for tax reasons. That’s one very recent reason enough to prove that companies will come to NZ to do business for tax reasons.
Stuart – you have been in NZ too long, that’s the issue.
Come to Hong Kong and explain to an audience of even middle-class people that their fair share is a top rate of 38 cents, a company rate of 30 and a trust rate of 33. You would need to bring Parekura as security as you would be lynched.
While you trot out the “ordinary New Zealander” and what they think is fair, just have a think that the “ordinary New Zealander” doesn’t necessarily pay most of the taxes in NZ.
Bea – ironic as Roger Douglas is apparently meant to represent big business and yet he closed the loopholes his apparent mates were allegedly exploiting.
Robert Winter.
There are such global regulations, theyre called Double Tax Agreements and through in the Transfer Pricing and Thin Capitalisation as well.
I’m very very very surprised that Hong Kong Kate didnt mention that.
The Taxman
See Trevor’s post on subject. I try and ignore Robert Winter where possible, leave him for others to mop up.
Lefties getting ortgasmic about stealing other peoples money because they can Sssssssooooooooo spend it better than them.
Kiwi(fail)rail anyone?
Hi
I want to see an end to the myth that ‘high earners’ don’t pay their taxes. As a family we get no child tax credits and pay huge amounts of tax (and paying back of student loans). We work hard for our ‘high earnings’. Additionally I would like to see an exploration of the myth that mom and pop NZ will invest in the stock market and businesses if their retirement rental property is taxed…
@ Emma – we’re in the same boat, I’d like to see that too. Although I suspect it will be an easy ‘myth’ to prove as for start, investment in things other than rental properties has a real chance at generating income & jobs.
@Stuart – re company tax. Yes it is uncomplicated & it is very competitive, perhaps a little too much so as NZ is the only or at least one of the few that has imputation credits. Hence the foreigners who love buying us out! Raise the company tax back up to 33c I say and raise the Trust tax rate too while you’re at it then drop the personal rate to match or even better, below those rates. Should fill up the piggy bank a bit more as that at least would mean that the rich would start paying their way.
Conscientious : “…at least would mean that the rich would start paying their way.”
Oh dear. Oh dear. Oh dear, oh dear, oh dear.