Tax changes: Part 1:
Soon after the election, the new Government tells us that:
• they are out of money, but
• they can nonetheless afford tax cuts.
About 30% of the resultant tax cuts go to the top 3% (yes, dear reader, 3%) of earners.
But to pay for it the hi-tech research and development tax credit is scrapped. Hi-tech, high growth, high wage, companies take a hit. A number of (especially Aussie based) companies that were planning to relocate to New Zealand stay put.
Hi-tech exports languish.
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YES!
I’m finally the first vote! 
!
Another bad idea
http://msn.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10666272
Another bad idea
http://msn.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10666272
Darn it the comment reappeared!
Sorry readers
Further tax changes are needed to allow New Zealanders to keep more of there hard earned dollars and to enable the phasing out of the insidious Working For Families benefit.
You didn’t have an option for borderline criminally negligent…
Yeah pd-em, when your dollars are received from a low wage, long hours economy they are very hard earned aren’t they?
But it certainly looks like the kind of economy that NAT wants NZ to have.
Again NAT misses the point – this is not about lower taxes, it is about higher incomes. They can sign the former into place, but they have no plan for the latter.
Peter, which companies were thinking of relocating ut have changed their minds?
I thought the official line was they borrowing to pay for tax cuts, then it was stripping the public service and now by cancelling the R & D tax credits (which were replaced by the poor direct grants) but which is it..?
Can’t have it every way…
I also do think that unless you do something smart like introduce a tax free threshold, due to the very fact that tax rates are percentage based and wealthy people earn more, they are going to get more of any cuts, this doesn’t mean tax cuts are a bad thing – just simple math…
I still dont understand why so many businesses dont understand how crucial R & D is to their present and future.
University departments are ripe for projects between Masters/PHD students and private enterprise R & D. Even though there is general bad mouthing of academics, they do form a large par tof the research and development foundation in this country. An oft overlooked fact, but understandable in a country where R & D is seen as icing on the cake rather than the cake
Not quite as silly as the Treasury recommending a Ponzi Scheme that channels taxpayer funds to the private and unproductive finance sector though. You guys/gals @ Labour need to be on to this ASAP.
@ PDM
WfF is a business subsidy. To phase it out businesses need to pay higher wages.
@ JMH
Yes, actually, they can. NACT certainly cut the taxes of the rich enough to do so.
Tracey – I reckon NZ’ers decided that building and renovating properties is a better place to invest capital than actual R&D. Less uncertainty, everyone can learn to do it, be making money out of it within a few months. Doesn’t usually require a serious level of technical or management skills (compared to developing a new fuel injection system for instance).
Well, at least that was the case when the property market was booming.
Draco – WFF is a benefit and an insidious one at that. Implementation of it was solely as a vote catcher to save the floundering 2005 election campaign.
The way to phase it out is to cut taxes – it has nothing to do with businesses.
Relabelling current expenditure as R and D would have made a fortune for lawyers and accountants. Gained us no extra R and D and continued the productive sector economic stagnation.
Cutting this rort and now giving tax cuts across the board with 70% going to the lowest paid was a master stroke.
“I still dont understand why so many businesses dont understand how crucial R & D is to their present and future.”
Only some businesses need to invest in R & D and few that are in NZ now need to invest much…
That is the problem, to diversify our economy we need the type of businesses that require large amounts of R & D but they won’t start without that R & D skill set, that is why changing the R & D tax credits and reducing teritary education is a poor move… Tax cuts are good but I think targeted tax credits was, and is, a good solution to the problem…
@PDM
The only reason why WfF is needed is because employers aren’t paying their employees enough and that is what makes WfF a business subsidy. Nothing to do with taxes at all.
@jeremy; good point. I can’t know that tax cuts were paid for by scrapping the R & D tax credit or by borrowing cos there is a thing called the consolidated acct. However I liked your second comment even more; we are out of synch with most OECD nations on this one.
At the moment we get a lot of our economy, we mainly have businesses that are very good to invest in (the NZX has very high dividend but low growth) as they have low capital costs usually, low R & D costs and turn good profits, Watties is always going to have consistently higher returns on equity than say a microchip company… I think this is due to Kiwi’s do it yourself nature and isolation…
So the two main problems we have as I see it are; a lack of capital investment i.e. plant and equipment, in our current economy this would be things like upgrading manufacturing plants (more likely to move overseas), new cow sheds and field hides that collect excrement, fruit sorting machines, better heavy equipment, a newer vehicle fleet, public transport, better shipping and rail infrastructure, etc and secondly a lack of tax breaks and tax credits for secondary and tertiary industries…
The first is addressed through tax breaks on saving, Kiwisaver, etc and business investment tax cuts combined with tax hikes on property and property speculation, the second issue can be addressed through a R & D tax credit and increase in grants to organisations like the MacDiarmid Institute…
I’d like to point out that the South Korean government (and businesses) are spending 5% – 6% of it’s countries GDP on R & D this year – that like us having $9,000,000,000 odd of business R & D and R & D tax credits and grants… A patent strategy plan would be good too…
We really can’t afford to get this wrong but the upside is fantastic – if we’re the only first world nation that relies on the primary sector, imagine how wealthy we can be if we add strong secondary and tertiary sectors…
To be clearer we currently have businesses that are good to own but aren’t getting the investment required to increase productivity, the also aren’t in high growth industries that require large R & D spends – we need to change that if we are going to have a diversified economy and start moving up the ladder, either that or start turning some of our companies into global brands…
What happened to all the extra investment in business productivity that was supposed to happen when life was made easier for business?
OOps I forgot! It dropped by over a third.
Sorry meant reduced to less than a third of investment previously.