Myth: Countries are cutting their corporate tax rates. NZ also needs to in order to remain competitive.
On 27th January, in the first of the Tax Myth-busting posts, I exposed the myth that NZ’s company tax rate is relatively high. Now its time to discount the myth that we need to drop our rate, in line with the global trend.
In 2007, the same year that Labour cut NZ’s corporate tax rate, so did Denmark, Germany, Iceland, Italy, Spain and the UK. Since 2007, Hungary and Mexico have increased their corporate tax rate (both by one percentage point).
In the OECD, only Germany (8.5 percentage points), Italy (5.85 percentage points), and Czech Republic (5 percentage points) have cut their corporate rate by a greater number of percentage points than NZ.
Remember, NZ doesn’t have a capital gains tax, payroll tax, a financial transaction tax, stamp duty…
Cutting corporate tax is not a current global trend and I haven’t seen a paper yet that can mount a strong, rational argument for doing so: and certainly not from this government.!
Australia may cut the Company tax rate to 25% look who is against it.
The 30 per cent company tax rate is expected to be cut – possibly to about 25 per cent – to make Australia more internationally competitive.
Welfare groups and the ACTU are urging the Government to reject any proposal to reduce the overall corporate tax take.
But Stuart it was actually Labour that cut the corporate tax rate to 30%?
http://www.beehive.govt.nz/release/company+tax+rate+falls+1+april
Given what you have written here, why did they do that then?
It seems that your Minister at the time in the coalition, Peter Dunne stated:
“We expect that lowering of the company tax rate will serve to strengthen the competitiveness of New Zealand-based companies, and that is good for the long-term interests of all New Zealanders,”
Labour did cut the corporate tax rate. Repeatedly. The National Party has not. And Labour has the reputation for being business-unfriendly?! National is a party of hypocrites on this. Yes, Labour cut taxes but it also made taxes fairer, introduced working for families, upped expenditure on social services…etc, etc. I don’t think Labour has anything to be ashamed of. It kept honest with its social objectives AND managed the economy. National’s reputation cannot even be described as being one-sided.
What Peter Dunne thought and why the Labour government did what they did are two different things.
Maybe the Labour Minister of Finance thought
1. if we had a lower company tax rate – foreign owners would pay the tax here rather than understate local profits and send money offshore untaxed.
2. local small business people would see this as their tax cut.
One suspects however that his focus was on depreciation allowances for plant and equipment and R and D tax incentives to develop sustainable economic growth.
As for National’s interest in the issue – it was matching the Australians IF they moved to a 27 cents rate. They should however keep an eye on the overall tax policy balance and not selectively focus on particular areas. The Australians and many others maintain a higher top rate than 38/39 cents. And nearly all include a CGT, so shareholders pay tax on rising company share values.
Stuart – you forgot to mention the Imputation Credits, something which other countries don’t have. The exception of course being Australia with whom we have an agreement so Aussie companies can attach the IC to the dividends of NZ shareholders…
Thus, I can’t believe I am saying this, but on this particularly post I agree! If anything I think Labour dropping the company tax rate to 30c was actually a little too generous.
“Remember, NZ doesn’t have a capital gains tax, payroll tax, a financial transaction tax, stamp duty…”
A question minor I know Stuart. But from my knowledge NZ does have in the provisions Stamp Duty, it is just that it was lowered to 0%. So a quick ammendment by any govt could increase this without “Hand on Heart” stating that no new tax was introduced. This may have changed and been eliminated but I am 49% confident in this!!
In England the main corporation tax rate is 28%, for small companies it is 21%. That’s a fair bit lower than we are at the moment. I don’t see any problem with reducing our corporate tax rates. After all, directors dividends and so on are taxed at the marginal tax rate anyway, so you still get a slice of the pie.
If we have a tax policy that attempts to keep the tax rates and thresholds in harmony with the current wage/salary rates AND the govt’s need for [x] amount of revenue for essential services and it’s desire for [y] amount of additional revenue for other spending then tax rates and thresholds would be being tuned each year.
The concept that the rates and thresholds as they are now are just right is such a head in the sand perspective for opposition to be taking. Cullen might have had the ability to continue telling us that the same definition of “rich” endured from 1999 to 2008 but Goff now appears to have woken up to wage inflation and the effects that stubborn rates and thresholds therefore create.
Tax is not about plucking the goose with the least amount of hissing – it is about extracting sufficient revenue as fairly as possible to provide funds for govt. Any idiot finance minister can just wage a war against high earners to make his/her party look socially responsible, but being socially responsible goes well beyond cherry picking the easy targets.
Give up the “tax cuts bad” BS, your party leader has already woken up to the fact that the tax system isn’t perfect as it stands now. When you have your epiphany and start thinking fairness is more marketable than envy you might also look back on this “tax cuts bad” angle and cringe.
People need to keep in mind that out tax system is less of a burden than Australia or England. My understanding is their systems are more complex which puts more burden on compliance.
As the Australians have delayed making a decision on the rate of company tax (it won’t occur before our May budget) this is more an issue for 2011.
But the problem we have had of late is lack of balance to our tax policy and focusing on the company tax rate is again the simplistic option. Australian companies have generous R and D tax credits for example and there is the matter of CGT which affects both shareholders rate of return and the ability to raise share capital or finance via bonds.
The other matter is the lack of access to bank lending to our small businesses – who often can only borrow up to the value of the home of the business owner/s.
Possibly only a CGT and a reduction in tax on interest/resident dividend income will make a substantial change to this.
Whos going to suffer from the tax cuts, the public sector or the government’s already troubling deficit?
Stuart, you are in danger of placing facts in the way of a good story. I hope no-one from the media reads your posting. Imagine how confused they would be? Poor darlings.
“Cutting corporate tax is not a current global trend”
Aren’t we always hearing that NZ should be a world leader?
Oliver, not since the National Party became Government.
Tracey – that would be a great contention if this blog article was about why we shouldn’t lead the world with business tax cuts
Oliver
J Key has made it pretty clear he doesn’t want us leading or being innovative on the world stage, the most he has said is we need to “catch” Australia. So don’t expect them to lead the way in economic and tax thinking.