The SME package

February 4th, 2009 at 12:25 pm by David Farrar

National has announced a half billion package (0ver four years) of policies to help small and medium sized businesses, during the economic downturn.

There are five parts:

  1. a suite of 11 tax changes costing $480 million
  2. an expansion to the export credit scheme
  3. extended jurisdiction for the Disputes Tribunal
  4. expansion of business advice services
  5. a prompt-payment requirement for government agencies.

The tax changes are:

  1. removing the 5% increase in provisional tax over the previous year
  2. reducing the use of money interest rate for underpayments by 4.5%
  3. threshold for GST payments method (instead of accrual) to increase by over 50% from $1.3 to $2.0 million
  4. threshold for GST registration to increase by 50% from $40,000 to $60,000
  5. legal expenses of under $10,000 can now be fully expensed in the year incurred, not capitalised
  6. increase in threshold for montly PAYE filing increases from $100,ooo to $500,000
  7. FBT annual filing threshold raised to $500,000 from $100,000.
  8. value of minor fringe benefits to employees without attracting FBT will increase to $300 a quarter per employee from $200, and $22,500 a year per employer from $15,000
  9. FBT prescribed interest rate for low-interest, employment-related loans will fall from 10.90% to 8.05%.
  10. some other thresholds for accrual expenditure adjustments will also be increased.
  11. certain SME tax simplification measures that are part of a bill now before Parliament will be fast-tracked.

Other significant changes are a doubling from $7,500 to $15,000 the value of any disputes before the Disputes Tribunal, which saves having to go to District Court. Also the Government has instructed all Departments to pay their bills no later than the 20th of the month following receipt of invoice.

Also good is the New Zealand Export Credit Office (NZECO) will provide short-term trade credit insurance for exporters, as the lack of such credit insurance could have seem some exporters having to turn down orders.

There is no silver bullet amongst the changes announced, but that is because there is no magical cure. One just has to keep working away at making things better. This is why reform is not a one off thing you do, but is continual.

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20 Responses to “The SME package”

  1. infused (648 comments) says:

    wow, that’s really good.

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  2. Bryan Spondre (225 comments) says:

    But not really enough to reverse the migration trend to Australia which is still increasing.

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  3. GN (18 comments) says:

    Colin Espiner has just made some very astute comments about this, and as a small business owner, and National voter, I must say I agree with him. Key and English are just giving us more of the same Labour style governmental contempt. Australia is looking very attractive indeed. I had hoped for better leadership from Key- but sadly its not there.
    The only real benfit to your average self employed/small business owner is the 5% profit increase removal.
    Tens of thousands of self employed are hurting bigtime in the construction industry right now, perhaps they should whinge more, like the farmers do, to bring home to government exactly what its like out there.

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  4. calendar girl (1,203 comments) says:

    There’s no such thing as the “perfect” package of measures, but isn’t it refreshing to have pragmatic, coherent, sensible, wide-ranging and simply-implemented improvements being put forward to achieve broad economic objectives (including the cutting of red tape) instead of idealogical lurches designed to engineer societal change.

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  5. GT (44 comments) says:

    increase in threshold for monthly PAYE filing increases from $100,ooo to $500,000

    Wow – as an SME I’m stoked to see this in there. I laughed when I first received notice from IRD that our business was now defined as a ‘large’ employer. After much fiddling and phone calls, I managed to get us registered as a M1 employer – so that we could only pay in the first half of the month, an avoid having to make two filings per month (1-15, and 16-EOM).

    Also the Government has instructed all Departments to pay their bills no later than the 20th of the month following receipt of invoice.

    Having Govt departments also pay on the 20th will be a good thing – some of them are notoriously tardy. I just hope it extends to District Health Boards, some of them have extremely slow payments processes and still even pay by cheque.

    Re: the bigger picture, I’m sure there will be many more announcements over the coming months, so I don’t think we should be slagging National too much for not doing enough today. Over time, all the changes will add up to significant changes that take us a long way away from where Labour wanted us.

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  6. tknorriss (327 comments) says:

    Looks like trying to kill the problem with a thousand cuts. However, I don’t think there is a silver bullet to address the problem. I know there are infrastructure announcements due later in the month. It is important to remember that whatever is borrowed now to throw at the problem has to be paid back at some stage, so some thought and care is necessary.

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  7. Camryn (551 comments) says:

    I hope they pass legislation to also automatically inflation adjust these thresholds (and any other similar ones) at a regular practical intervals so Labour can’t reduce them through inaction, only through action.

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  8. Tauhei Notts (1,652 comments) says:

    The reduction in those usurious Use Of Money interest charges was long overdue.
    Other suggestions from me that were overlooked:
    1. Reduce the withholding tax on interest paid to companies to 30% to tie in with the company tax rate.
    2. Remove the need to deduct dividend withholding tax from fully imputed (imputed to 30%) dividends.
    3. Reduce the horrific No Declaration tax rate of 46.4%.

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  9. georgebolwing (687 comments) says:

    I am going to rain on the parade and say that this is a very bad package of measures.

    It is bad because:

    a) it is ad hoc. They have put together a random group of measures which only have one thing in common: they reduce the amount of money the Crown gets. Ad hoc packages mean that the Government has no clear vision of what it wants. Most importantly, it is impossible to predict and thus plan if the government is being ad hoc. If ad hoc becomes the Government’s standard mode of operation, firms will delay and reduce investment.

    b) it is tactical, not strategic and short-term, not long-term. The real problem with the income tax is that it is an inherently complex beast, whose time has passed as a wide scale source of revenue and income redistribution. Rather than spending time fiddling with the commas and full stops, they should be looking at the sentences, paragraphs and chapters: reducing wasteful expenditure and middle-class churn so that the income tax can be repealed;

    b) it assumes that the agencies of the state have a “wider social purpose”. This is third-way socialism. It is not the role of chief executives of government departments to pay bills quickly because it is good for suppliers. It is their role to run their departments as efficiently and effectively as possible. If you accept a “wider social purpose”, then we risk getting into things like departments have to buy locally-made products; they have to employ people without the skills needed to get jobs in the private sector or they have to place operations in “depressed areas”. All these things lead to higher taxes and a less efficient economy.

    c) it is contradictory. This is a bit of a combination of all the above. The Government is telling us that they want to reduce inefficiency in the public sector and unleash the power of the private sector to create jobs and wealth. So they issue an instruction to chief executives to be inefficient and they are expanding the role of the state.

    A far better way to benefit the private sector would have been to add the money to an across the board cut in the company tax rate.

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  10. Inventory2 (10,185 comments) says:

    Interesting points george – personally, I am pretty happy with what has been announced today. Like GT, we are on the cusp of moving to fortnightly PAYE, which would, quite frankly, be a pain in the proverbial. By the time we meet the new threshhold, I would hope that our business is sufficiently profitable that someone other than I can be paid to do the spade-work! I personally believe that the government should be appluaded for taking steps to reduce the cost and burden of compliance on SME’s.

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  11. georgebolwing (687 comments) says:

    Don’t get me wrong, I want the compliance burden on all firms greatly reduced. I just want it done in a strategic, sustainable and consistent manner.

    My great fear for this government is that they will try and perfect socialism, rather than dismantle it.

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  12. CraigM (694 comments) says:

    The ship was poorly designed and badly run. It is sinking.
    To be a proper ship, it needed a complete redesign more akin to it’s actual purpose.

    Failing that, some serious welding needed doing to change the structure and make it watertight.

    So we got in a new crew to make the necessary changes. We were all so excited.

    And what do we get. A frikkin band aid.

    It’s not a bad bandaid, it might stop the bleeding but not for long. Before long it will need help from other bandaids.

    It hasn’t fixed the problem, which is a design fault. It is just going to keep the bloody ship of broken dreams afloat a little bit longer.

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  13. side show bob (3,660 comments) says:

    I agree with GeogreB “income tax is an inherently complex beast”, why does this have to be so?. How many bloody times do governments try to reinvent the wheel. As a farmer I live by the KISS system ( keep it simple stupid ) and it works just fine. I believe governments greatest fear is that the people might get to actually understand their poxy tax systems. God forbid the people realise they are getting done like a dogs dinner. Yes Nationals plan sounds better but why oh why can’t we have something revolutionary that all can live by and understand.

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  14. Tauhei Notts (1,652 comments) says:

    A further suggestion that could have been siezed upon would have been to extend The Income Equalisation Scheme, which is presently limited to farmers only, to all of the self employed and recipients of shareholder employee salaries. That would have been a bold venture, that is cash flow positive to the Government in the short term.

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  15. georgebolwing (687 comments) says:

    SSB: the income tax is inherently complex because of the need to be fair. We could have a much simpler income tax, if we where prepared use averages than exact amounts.

    For example, we could allow all assets to be depreciated at 10% per year. Great. Very simple. No need to go through all those tables trying to work out what type your assets are. But what if your asset is a building that will last 50 years? True depreciation should be 2%. OK, you win. But what if it is a computer that should be depreciated over 3 years. You lose.

    The income tax is complex because of all the losers from a simple system.

    Every committee established here or overseas to review the income tax and make it more simple has failed because of the fairness issue. There is an iron triangle: you can’t have an income tax that simultaneously raises a lot of revenue, is simple and fair. Governments tend to go for revenue and fairness, and sacrifice simplicity. GST is simpler than the income tax, but is not as fair, because it can’t be made progressive.

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  16. Viking2 (11,286 comments) says:

    Really underwhelming. If you have a company started in the last 18 months and not of scale that requires all these payments this has done squat for you.

    Clearly these people do not have a feel for the gravity of the situation in many area’s. Has anyone seen the unemployment figures of late or have they been forgotten rather than released? They are not going to be pretty and add nearly 40,000 that have jumped the ditch plus all those gone onto other benefits and we are in a hole.

    Want to do something that will make a rapid difference.
    Really simple.
    Direct credit into every Board of Trustee’s account and amount of $50,000 immediately with the following instructions.
    This is to be used for deferred maintenance work, to be started asap. It is not to be used for new or capital work.
    You are responsible for the spend in your school as only you know the priorities. You may spend up to $3000 without seeking quotes and more with two or more quotes. You will be required to file a summary showing what the money has been used for and you must also publish this to your school parents.
    You may employ your parents directly where appropriate. This money must be spent by (suggest 6 months). where upon you may apply for a further tranche of $50,000.

    Does anyone see the beauty of this?
    School boards will be over the moon, teachers unions will be dumbfounded and unable to criticize, school maintainace that has been help up forever will get done. It won’t require an army of Wellington bureaucrats just one entry on a bank account.

    It will assist local businesses all round the country immediately, not require RMA’s, not have to wait for major companies to get into gear and the benefits just go on and on.

    Do we think English will let Key do this. Not a chance he would rather spend his day talking to the socialists in Aussie. ( oh and I forgot criticize his boss for having too mant brain waves and good idea’s. That’s right he did that publicly the other day. Wanker)

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  17. Anthony (785 comments) says:

    Accountants and tax lawyers love a complex tax system, which is why they always want to keep the current virtually impossible to implement law on capital gains.

    If judges looked at the substance of tax law rather than the form we also would not need such complex tax law to stop avoidance.

    Tax concepts can be simple – to say that varying depreciation rates is complex is nonsense. What is complex is lots of different tax treatments for different circumstances, with various concessions based on meeting certain conditions. At least the Nats dropped the R and D tax credit – such schemes are great for getting firms to recharacterise expenditure and tax lawyers to dream up rorts.

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  18. Thrash Cardiom (298 comments) says:

    Apart from the 5% provisional tax bit I think this will have very little effect on most small businesses. The medium and larger ones should get a bit of good from it though.

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  19. freethinker (686 comments) says:

    Whilst I agree the package does not go far enough I think John Key should be cut a little slack given the number and size of the problems he inherited and just arrived as he took office. He has done & started a lot of things in a very short time most of which have widespread support, compared to 9 years under Labour he is a ICBM compared to Helen the sloth.

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  20. Fernando (12 comments) says:

    This is more a “small package for business” that a “small business package”.

    It’s so timid and lacking in direction and scale, it’s frightening. Either it suggests the current Government doesn’t know how to respond, or it knows something we don’t know, and is working to avoid it. Not sure which scares me more.

    As Tim Geithner says, in normal times, risk aversion damps economic cycles. In a crisis, it accentuates them. The brake becomes the accelerator, as he puts it.

    This package smacks of risk aversion and looks foolish against what the Rudd Government is doing in Australia – and other governments are doing elsewhere in the world.

    Let’s hope there’s bolder stuff to come from the Government, soon – and that Key hasn’t accidently stuck his foot on the crisis accelerator with this one.

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