25 July 2006
Business Tax Discussion Document
The New Zealand Chambers of Commerce and Industry are encouraged by some of the options in the Government’s business tax
review discussion document released today but advised bold decisions are needed if New Zealand is to move into the top
half of the OECD.
“There are some positive measures on the table and it is pleasing to see the possibility of a reduction in the company
rate. However a reduction of 3 cents in the dollar is not enough if we are to fully transform New Zealand’s economy or
achieve the kind of productivity growth that both we and the Government are wanting,” said Director Charles Finny.
“The Government’s own analysis shows that while New Zealand’s corporate tax rate has been flat over the last two
decades, the OECD’s unweighted average has been steadily falling and it is currently below 30%. We need to be below the
OECD average if we are to maintain competitiveness. This reinforces the case for us to be looking at 25% rather than
30%.
Mr Finny also commented on the risks around reducing the company rate while leaving personal tax rates unchanged.
“Around 40% of businesses are unincorporated – for example as sole traders or partnerships - and would not benefit
directly from reductions in business tax. The Government’s final decisions would need to take account of this.
“The document is negative about a payroll tax which is encouraging. A payroll tax would involve high compliance costs
and be borne by employees through a reduction in post tax wages and lower employment than otherwise.
“In conjunction with other business groups, the Chambers had advocated a reduction in the top and middle personal tax
rates to 28% and the company rate to 25% in two steps by 2009/10.
“We will be looking more closely at the document particularly at the tax base and compliance cost measures and making
submissions in due course.
“As a general rule, we feel it is undesirable to favour some business activities over others but we will examine the
types of measures being proposed. Likewise we have a general unease about export market development credits but we will
study the design of such credits carefully. We’ve had them before and they haven’t worked that well. We also need to be
convinced that we will not be breaching WTO rules or obligations,” Mr Finny concluded.
ENDS