Possible pressure on business tax plans

In October Jacinda Ardern said that the Government would consider lowering the company tax rate for small to medium business owners. NZH:  Jacinda Ardern to consider tax breaks for small businesses as minimum wage is set to rise

Prime Minister-designate Jacinda Ardern says she will ease the pressure of higher wages on small- to medium-business owners, including looking at a lower company tax rate.

As part of its deal with New Zealand First, the incoming Government will raise the minimum wage from $15.75 an hour $16.50 next year, and then to $20 by April 2021.

The increase is raising concerns in the business community and among farmers about meeting higher costs.

Speaking to Radio NZ’s Morning Report, Ardern said she wanted a tax working group to look at how Australia’s stepped tax regime operates.

“They have a slightly lower corporate tax rate for companies and businesses that have lower turnover. I’m interested in how we can ease the burden on small businesses in particular.”

In Australia, companies with turnover of less than $10 million a year pay a lower company tax rate.

“This is me foreshadowing that I do have a genuine interest in how we can support those who create jobs in New Zealand,” Ardern said.

“In large part, our small and medium enterprises – well over 40 per cent of our new jobs – are coming from our SMEs. I want to do all I can to work in partnership with them.”

But after Donald trump significantly lowered business tax rates in the US there could be pressure to lower all rates here if New Zealand is to remain competitive.

Stuff: Has Labour’s tax agenda just been Trumped?

Cutting tax for big business is probably the last thing Labour wanted to be on the agenda of the newly-established Tax Working Group.

 

The group will also consider a “graduated” company tax rate that would see big businesses pay tax at a higher rate than smaller firms.

But United States President Donald Trump’s decision to slash company tax in the US from 35 per cent to 21 per cent could be a spanner in the works, putting New Zealand under pressure to lower its company tax overall.

John Milford, chief executive of the Wellington Chamber of Commerce, says New Zealand’s 28 per cent company tax rate already stood out against the OECD average, which he puts at 22 per cent.

“It’s certainly overdue for another review.”

In Britain, company tax is 19 per cent and set to fall to 17 per cent by 2020.

Australian Finance Minister Mathias Cormann​ has promised to reduce Australian company tax from 30 per cent to 25 per cent by 2027, explaining Australia needed to be “internationally competitive”.

That in particular would put pressure on the New Zealand business tax rate.

Revenue Minister Stuart Nash is keeping advice he has received from Inland Revenue on the impact of Trump’s tax reforms under the lid for now.

But the Australian Treasury has warned that the US changes could come at a cost to the rest of the world that might include “reduced foreign investment, lower GDP and real wages”.

The Tax Working Group is being asked to look at improvements of the tax system to see whether it operates ‘fairly’.

The Working Group will report to the Government on:

  • whether the tax system operates fairly in relation to taxpayers, income, assets and wealth
  • whether the tax system promotes the right balance between supporting the productive economy and the speculative economy
  • whether there are changes to the tax system which would make it more fair, balanced and efficient, and
  • whether there are other changes which would support the integrity of the income tax system, having regard to the interaction of the systems for taxing companies, trusts, and individuals.

Under Objectives in the Terms of Reference for the Working Group:

  • A system that promotes the long-term sustainability and productivity of the economy

The Working Group should consider in particular the following:

  • Whether a progressive company tax (with a lower rate for small companies) would improve the tax system and the business environment

With New Zealand’s tax rates being higher than average, after the US cut in business tax rates and a commitment by Australia to lower their business tax rates, the Working Group should be considering the long term sustainability of New Zealand’s business tax rates.

43 Comments

  1. Blazer

     /  February 25, 2018

    what evidence is presented to support the lowering of business tax rates?CBA is…??

    • David

       /  February 25, 2018

      In the US there have been loads of companies paying bonuses to staff as an immediate effect. A lower company rate makes an investment in new plant more attractive, capital purchases are made from after tax profits and then depreciated.
      Keep in mind that its the company tax Blazer and the “fat cat’ bosses still pay the same rate of tax when they are paid/take out drawings so its not a tax cut for millionaires its in practice the opposite as its more effecient to leave the profits to be re invested in the business hopefully growing it and employing more people.

      • Blazer

         /  February 25, 2018

        Not good enough…very vague benefits.All theory ,like de regulation of the banks and trickle down b/s.The incentive should be targeted…new plant =rebates.There should be compelling evidence that low company rates lead to growth and wealth across a nation.There are none.

        • alloytoo

           /  February 25, 2018

          Oh like free first year tertiary education……that’s a targeted policy…..with compelling evidence that it’s going to lead to better education outcomes………..tailored to the needs of the economy……..

          • Blazer

             /  February 25, 2018

            the irony that a good many in Pariament and many other spheres of influence had a free education….seems to have ..escaped you.

            • alloytoo

               /  February 25, 2018

              Clear evidence of failure then. so…..rinse and repeat?

        • David

           /  February 25, 2018

          Rebates are sort of done through depreciation schedules already. Lowering company tax rates leading to more investment is evidence based and has happened in many countries by left and right wing governments. Its occurring in real time in the US at the moment.

      • artcroft

         /  February 25, 2018

        Paying bonuses to staff. LMAF. Shareholders make a bundle out of this tax cut and bosses are wise enough to throw a few sardines to the masses that the mindless think is “trickle down” at work. Bonuses come and go, lets see them raise wages by 15% as a genuine sign that these tax cuts are getting shared.

        • David

           /  February 25, 2018

          Shareholders pay exactly the same amount of tax, imputation credits mean dividends are taxed at your marginal rate, the corporate rate makes not a jot of difference tax wise to shareholders.
          If the corporate rate is lower than the shareholders marginal rate then it makes re investing in the business more attractive…more jobs, more investment, better productivity etc etc

          • artcroft

             /  February 25, 2018

            If a corporate pays less tax it keeps more of its profits, that it then pays to this shareholders as dividends. Yahoo for large corporate shareholders.

            As for larger profits leading to greater investment, profits have been excellent for the last ten years, but middle class wages remain static. If you want to help the middle class (one of Trump’s major lies) then cut taxes on the middle class permanently.

            • High Flying Duck

               /  February 25, 2018

              When company profits are paid as dividends they are taxed at 33% no matter what. The only change if company tax is reduced would be the split between imputation credits attached to the dividend and the dividend withholding tax required to be paid by the company on payment of the dividend.
              As such the only benefit to the company is the extra cash in retained profits available to reinvest in the business.
              When the company is able to retain a higher proportion of funds it makes it more able to withstand downturns, better able to employ new staff and able to invest in capital plant as required.
              There is no tax advantage to the shareholders. The benefit is purely the rewards of a better performing business (assuming the extra available working capital is wisely invested).

            • David

               /  February 25, 2018

              Artcroft with all due respect I dont think you understand company tax, have read quite a few of your comments here over time and think you may find that cutting company tax fits in with more of your beliefs. Shareholders receiving dividends will still pay the same amount of tax because they make up the difference that equals their own marginal rate.
              If a companies tax is reduced it is more advantageous to re invest profits than to pay it out to directors, shareholders etc. who still pay the full noise in tax. The re invested profits seems to be what everyone on the left wants instead of money being put into property its put back into business.

  2. alloytoo

     /  February 25, 2018

    I’m against complicating the tax system, complications lead to increased compliance costs and increased avoidance behaviors.

    Choose a tax level, align all your production taxes against, discourage avoidance behavior.

    • Blazer

       /  February 25, 2018

      would you close all tax havens around the…world..then,or introduce confiscation of assets for citizens that…used..them?

      • David

         /  February 25, 2018

        I would stop companies operating here cooking the books for a tax advantage, if you operate here you should pay tax here but that is a different discussion.

        • Gerrit

           /  February 25, 2018

          Any examples where foreign companies are “cooking the books”?

          From my experience they all pay taxes according to the laws of the land. It is legal to charge a corporate business management expense, it is legal to borrow capital from a subsidiary in a foreign jurisdiction to fund capital expenditure elsewhere in the world, etc., etc.

          Now Labour is free to change those laws (like UK Labour’s Ken Livingstone proposal to levy business tax based on turnover not profit.)

          Biggest pitfall in that is that business would not have any reinvestment moneys.

          Problem for corporatism is not minimising the tax take through overseas jurisdictions, but how to repatriate the money back to the shareholders.

          Case in point is Apple. They need the pile of cash stockpiled in Ireland ($234Billion) back in the USA. To bring it back in they would face the full corporate tax rate (35%), hence ongoing negotiations with the federal reserve to set a rate of taxation on the repatriated monies. (now set at 15.5%)

          Worth a read

          http://money.cnn.com/2017/12/27/technology/apple-cash-tax-reform/index.html

          For Apple now has a problem, they badgered to be able to bring the cash home. They got what they wanted (well at a 15.5% penalty) and now really do have to do something with the cash; invest, repay shareholders, start production in the USA, something at least.

          Mind you it is a nice problem to have.

          • Blazer

             /  February 25, 2018

            but,but..what will happen in..Ireland…will jobs..go?

            • High Flying Duck

               /  February 25, 2018

              No. It is simply a cash stockpile.

            • Blazer

               /  February 25, 2018

              @HFD…so no or very few jobs are created in Ireland when coy’s registered there?When they repatriate how will it affect…Ireland…use Apple as an example.cheers.

            • High Flying Duck

               /  February 25, 2018

              You seem to be more confused than usual Blazer.
              The issue is that Apple make loads on money which is run through their Irish operation.
              Due to the fact USA had draconian taxes on repatriation of these funds they kept it in Ireland growing an enormous stockpile of underutilised funds.
              This cash has no effect on the ongoing business or staffing. It is simply the retained earnings over time that were too expensive to take back to the states.
              The change in tax laws means the funds can now go. The business that was set up in Ireland continues to operate an to employ staff and do what it does.
              If your ridiculous premise was the equivalent of an employer shifting a term deposit from ASB to TSB and because of this the Auckland employees suddenly losing their jobs.

            • Blazer

               /  February 25, 2018

              very hostile attitude there.Your analogy fails because ASB and TSB are domestic operations in NZ.Ireland and the U.S.A are 2 unique nations.Apples reserves of over $260 billion are significant=,more than NZ’s total GDP.It is not inconceivable that jobs can be lost when banks loses a significant source of their deposits.It is very optimistic to suggest that ‘The business that was set up in Ireland continues to operate an to employ staff and do what it does.’……will be unaffected .

            • High Flying Duck

               /  February 25, 2018

              Ireland set up business friendly policies and attracted companies like Apple to set up operation there. The fund accumulation was an unintended consequence, due to US tax law – it was not the intent of the policies enacted by Ireland. You have switched from Apple staff losing their jobs to bank employees losing jobs…which is extremely tenuous.
              You can keep spinning your wheels but you are wrong on this.

            • Blazer

               /  February 25, 2018

              God knows how I can be ‘wrong on this’…given I merely asked a question ,in an attempt to better understand the situation.Your condescension and impertinence ,is hard to fathom,especially as you do not understand the difference between a C.E.O-Adamson and a Chairman-Norris.

            • High Flying Duck

               /  February 25, 2018

              I’m sorry if I got you wrong Blazer. Whoever posted this comment:

              “@HFD…so no or very few jobs are created in Ireland when coy’s registered there?When they repatriate how will it affect…Ireland…use Apple as an example.cheers.”

              1 Opening premise is wrong. Ireland does very well out of foreign corporates, both in tax take and employment.
              2. No effect of repatriation as it is retained earnings being repatriated. It does not effect business operations or Government revenues.

            • Blazer

               /  February 25, 2018

              so more condescension…I posted it.Note it has a question mark?I wonder how you have come to the conclusion that ‘No effect of repatriation as it is retained earnings being repatriated. It does not effect business operations or Government revenues.’……my understanding is ,repatriation is yet to…happen!

            • Blazer

               /  February 25, 2018

              ‘You have switched from Apple staff losing their jobs to bank employees losing jobs…which is extremely tenuous’…Irish workers losing their jobs is the point…whether they work at Apple,a bank,or Uncle Seans bar…it matters not.

          • Gerrit

             /  February 25, 2018

            Blazer, if Apple keeps funneling their earnings through Ireland than no changes to Ireland tax take or the 6000 Apple employees there. Though not of those 6000 work in;

            “The head office, an Irish-incorporated firm called Apple Operations Europe, “only existed on paper” – with no employees, no premises and no real activities. The Apple offshoot was effectively stateless and operated tax-free” .

            However Ireland is extremely exposed to loss of tax revenue as;

            “A Revenue analysis of last year’s windfall corporate tax take for Ireland showed the 10 largest taxpayers accounted for nearly 41% of gross receipts for 2015, although the identity of those firms has not been revealed.

            Around four-fifths of all corporate taxes for the same year were paid by non-Irish businesses.”

            https://fora.ie/tim-cook-apple-taxes-ireland-2955556-Aug2016/

            Ireland stands to loose a lot of tax revenue.

            .

      • alloytoo

         /  February 25, 2018

        “would you close all tax havens around the…world..then,or introduce confiscation of assets for citizens that…used..them?”

        A Newman or a squirrel? it’s hard to tell sometimes.

        My position is simple.

        Taxes are intrinsically unfair.
        Taxes are a necessary evil.
        Simple taxes are easier, cost less to administer, and are harder to avoid.
        All that’s left is to price your tax appropriately.

        • Blazer

           /  February 25, 2018

          you avoided the question…are you a squirrel that does the…twist?

          • alloytoo

             /  February 25, 2018

            Your answer is:

            “Simple taxes”

            “price your tax appropriately”

            Then you don’t have you worry about things in foreign jurisdictions that you can’t control.

            • Blazer

               /  February 25, 2018

              you can certainly control NZ domiciled tax payers.Your solution to charge the wealthy zero tax ,so they don’t utilise sanctioned tax havens…is a very…feeble..one.

            • alloytoo

               /  February 25, 2018

              @Blazer

              “Your solution to charge the wealthy zero tax”

              Where did I espouse this solution? Looks like fake news to me.

            • Blazer

               /  February 25, 2018

              @allytoo…’price your tax appropriately”

              Then you don’t have you worry about things in foreign jurisdictions that you can’t control.’
              pretty simple ..translation.

            • alloytoo

               /  February 25, 2018

              “pretty simple ..translation.”

              “Simple” is the appropriate word.

              0% is not appropriate, neither is 100%

              Try again, not so simple this time.

            • Blazer

               /  February 25, 2018

              I can’t stand the suspense!!Not 0% ,not 100%….I give up…what’s the…answer?

            • alloytoo

               /  February 25, 2018

              “what’s the…answer?”

              Like anything in economics, where the price and demand curves meet.

            • Blazer

               /  February 25, 2018

              neither an appropriate analogy…or an indication that you know what…you’re talking…about!

            • alloytoo

               /  February 25, 2018

              Blazer if you don’t understand the laws of supply and demand and how they set prices, then I can’t help you.