If the Government manages to push through the recommendations of the Tax Working Group (TWG), the 450,000 or so small business owners in this country will be hit with massive compliance costs.
Small business, meaning all sole traders and including businesses with up to 20 employees, are the back bone of the New Zealand economy.
Their contribution to our economy is enormous. Together small businesses employ roughly 30 per cent of our entire work force and contribute roughly $65 billion to New Zealand’s annual gross domestic product.
So what will be the impact?
In order to implement Labour’s controversial capital gains tax (CGT), the TWG have proposed that every business in New Zealand must be valued by a professional valuation expert all on the same day.
This is not only ludicrously impractical, if not impossible, but the cost to be piled on businesses to comply with this will be horrendous and in some cases crippling.
Cullen has responded that it might not be on the exact same day, but regardless it will be huge extra costs for every small business in NZ, and huge revenue gains for accountants and valuers.
The compliance costs forced upon small business will run into the billions – I estimate $10,000 on average for each small business, meaning $4.5b of costs forced upon them by Labour tax policy.
And that isn’t even any extra tax revenue. That’s just the compliance costs.
The TWG is recommending that CGT applies to assets already owned on the date the law comes into effect.
Making CGT apply to assets bought after the tax becomes law is by far the easiest and fairest way to bring in the legislation. It avoids the messy and expensive exercise of coming up with a value for these assets.
This method is also fairer on taxpayers since the new tax only applies to assets bought after it’s introduced so individuals and businesses know what tax they might be on the hook for at time they buy an asset.
That is the simple solution, if there is to be a CGT. Only apply it to future assets.