NZ First wants a tax cut – for some

April 9th, 2013 at 12:00 pm by David Farrar

Stuff reports:

New Zealand First leader Winston Peters says his party wants to cut the corporate rate for exporters from 28 per cent to 20 per cent.

Well firstly it is a good thing that Winston recognises that a lower corporate tax rate is a good thing for the NZ economy. It is.

Commerce is more and more globally mobile. Companies can choose where to locate much easier than in the past. For Internet based businesses, even more so.

So all for lowering the company tax rate. But two big issues for Winston’s proposal.

The first is what spending will he cut, to fund a drop in the company tax rate? If NZ is in surplus, then you can cut taxes. But when we are in deficit, adding to debt is a bad idea.

Has NZ First even costed what their policy would be? That should be the first question from media – how much will this cost, and how will you pay for it?

The second issue is why exporters only? It is an arbitrary distinction. What if a manufacturer produces stuff for both domestic and international markets? Are they at 20% or 28%? Is Fonterra at 28% or 20%? My polling company has some international clients. Does that make me an exporter that can claim the 20% tax rate?

Tax systems are best kept simple. Two separate levels of company tax is a bad idea.

If Winston proposed an across the board lowering of the company tax rate to 20%, what it would cost, and how it would be funded – then people should take it seriously.

Also worth recalling that Winston, as Foreign Minister, opposed the FTA with China, launched a nationwide newspaper and billboard campaign against it. He campaigned against an FTA which increased by $5 billion a year. So much for his concern for exporter.s

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18 Responses to “NZ First wants a tax cut – for some”

  1. Shazzadude (529 comments) says:

    Winston opposed the FTA, not because he was ideologically opposed to FTAs, but because he felt the deal wasn’t good enough, as per his interview on Campbell Live that can easily be found on Youtube.

    [DPF: Well he was wrong. The evidence speaks for itself. hugely wrong]

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  2. Viking2 (11,471 comments) says:

    The first is what spending will he cut, to fund a drop in the company tax rate? If NZ is in surplus, then you can cut taxes. But when we are in deficit, adding to debt is a bad idea.

    Well the standard line from National advocates that reducing tax creates more tax to the Govt.

    Isn’t that so?

    He also advocated greater depreciation, something that Germany has done for years. Germany romps ahead because it’s manufacturer’s can write of plant quickly and replace it with the latest more efficient plant. But we don’t do that here because National have gone from being farmers to lawyers and fail dismally to recognize manufacturing which produces greater GDP and therefore wealth, per person than many other occupations.

    But, here in Lil Old NZ we fix the old stuff with fence wire and continue to be less efficient.

    Depreciation needs changing on on fixed plant, not motor vehicles on which we currently waste unnecessary amounts of cash. Indeed one could reasonably argue that with the great increase in the quality of cars these days the lease periods and depreciation periods should be extended.

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  3. Ed Snack (1,872 comments) says:

    Also worth noting that just lowering the corporate rate has limited impact, any shareholders withdrawing money will pay tax at the differential rate to their personal tax rate. So, assuming that a company pays a real 28% tax rate, dividends are imputed to that value, and anyone on a 33% personal rate pays a further 5% when the dividend income is received. If the rate changes to 20% (the company exports, say), then the shareholder pays 13% on receipt of the dividends.

    Useful however for overseas owners, not that I think that is Winston’s intention although who knows where he is soliciting funds these days.

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  4. Harriet (4,972 comments) says:

    Why would you keep taxes high and exports low when you have such a huge defict?

    And government revenue of $35,000,000,000.00 pa?

    Greed and self importance maybe…stupidity too? :cool:

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  5. queenstfarmer (782 comments) says:

    Well the standard line from National advocates that reducing tax creates more tax to the Govt.

    Isn’t that so?

    Um, no. Reducing taxes can create more total revenue, but can also decrease total revenue (google ‘laffer curve’ for one popular theory). The devil’s in the detail. Changing the company rate usually has a somewhat reduced flow-on effect due to imputation.

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  6. wreck1080 (3,917 comments) says:

    Didn’t John Key reduce personal taxes from 39% to 33% while in deficit?

    Lower taxes can produce extra growth which is the magic oil which transforms economies . The extra growth can make up for lost tax revenue very quickly.

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  7. RRM (9,924 comments) says:

    Viking2 – yes those new 2013 Accord V6s look lovely don’t they?

    The nation as a whole isn’t buying enough brand new Camrys and Maximas any more. We, the personal income tax payers, should be subsidising “industry” even more, so that they can replace their “plant” every 3 years rather than every 5 as many of them do now.

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  8. Alan Johnstone (1,087 comments) says:

    “Germany romps ahead because it’s manufacturer’s can write of plant quickly and replace it with the latest more efficient plant.”

    That’s like saying the Beatles were popular because George Harrison was a good guitar player.

    It’s true, but it misses the point; Germany romps ahead because it has a currency that is at a artificially low value; If German had it’s own currency the DM would appreciate relative to the weaker countries in Europe and bring things back into line.

    I’d suggest that this is much more important than amortization rules.

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  9. Alan Johnstone (1,087 comments) says:

    Regardless, when company and top rate personal taxes move out of sync people become incentivised to do stupid things like the Chch dentists. Only winners are lawyers

    30% across the board would make sense to me

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  10. burt (8,269 comments) says:

    Remember last time Winston agitated for (and got) a selective tax cut it was for the racing industry and then a year or two later it came out he had accepted undeclared donations from racing industry big business… – Just saying !!!!!

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  11. lazza (381 comments) says:

    Speaking of “Gothchas”!

    Slim Dave says: …”Also worth recalling that Winston, as Foreign Minister, opposed the FTA with China, launched a nationwide newspaper and billboard campaign against it. He campaigned against an FTA which increased exports by $5 billion a year. So much for his concern for exporter.s”

    Way to Go David … beautiful!

    “Hoisted on … ” … I believe is the phrase.

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  12. Alan Johnstone (1,087 comments) says:

    How much have imports from china risen during the life of the FTA ?

    Do we have a matching graph.

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  13. WineOh (630 comments) says:

    Wouldn’t another side-effect be higher prices for domestic consumers? EG- beef company can sell here, or export overseas. Gets take break if sending offshore but not if sold to Kiwis.

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  14. peterwn (3,272 comments) says:

    The problem is, such tax differentials are effectively export subsidies and leaves the exporters in question open to an accusation of ‘dumping’. The importing country may then apply an extra duty to ‘level up’ the playing field, just like councils charge commercial ratepayers more than residential on the basis that commercial rates are tax deductable.

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  15. pq (728 comments) says:

    We New Zealand citizens are having influence. NZ first as a swing party are offering voting for you NZ Nat Company tax down, in exchange for lack of currency regulation. Suck this 20 per cent down grade will fuck you Farrar.
    Vote here Farrar and get real, what5 will you have Farrar, printing money, currency devaluation, dreaming inside Wellington, vote here Farrar

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  16. mister nui (1,028 comments) says:

    Alan Johnstone, the main reason Germany romps ahead, is, as Viking pointed out, the ability to be able to deduct all capital plant expenditure in the year it was made. This has huge efficieny/productivity gains for them.

    This theory about lowering tax rates reducing gummint net tax income only holds true for a short period of time. By cutting corporate tax rates, we encourage overseas investment, and with it overseas dish and tax. Since the lower corporate rates in NZ vs. Oz, some Australian companies have already shifted operations here. Lower wages will also play a part in this.

    As others have pointed out, if corporate rates are dropped, personal rates need to be dropped commensurately, otherwise imputation will destroy many of the benefits.

    It has always amused me that labour and their corporate lackeys of Selwyn Pellet, Joh Walley et al. have been advocating strongly for an interventionist monetary policy to drive down the NZD, when this will have 1 very bad negative effect on the poor people, the people they supposedly stand for.

    The easiest way to fix manufacturing in NZ is to cut the corporate tax rate and introduce 100% deduct ability for plant purchases, this will make our manufacturers more profitable and therefore more competitive, with the added benefit of potentially being able to employ many of those poor people that the left supposedly advocate for. But, the reducing of taxes is an anathema to the left isn’t it…..

    Why Pellet and Walley don’t advocate for this, rather than the actual corporate welfare that they do advocate for, beggars my belief. The fact that Labour actually support the corporate welfare they are advocating for, when they are supposedly the party against it, also astounds me.

    I’m going to make it real simple for Bill English for the next budget and lay out his 3 step action plan right here. Ferrari, you might like to forward it on to him and save him a bunch of time;
    1. Make capital purchases (excluding vehicles) 100% deductible
    2. Cut the corporate tax rate to 20%, with a view to cutting it to 15% over the next 3 years
    3. Make the first $20,000 earned tax free and in 3 years time, cut the top tax rate to 20%

    Now, that wasn’t hard was it.

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  17. mister nui (1,028 comments) says:

    Sorry about all the typos in that last post – stupid fucking ipad and their American spelling auto correct…. Well that’s what I’m blaming anyway…..

    Ferrari is supposed to be Farrar….

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  18. Colville (2,268 comments) says:

    mister nui…you just left off the bit about how your going to pay for your ideas…. I know its a small detail but I think an important one. Without that detail you may as well be working for Shearer. :-)

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