Small business will benefit from IRD’s budget boost
“Budget 2002 provides $17 million over four years to fund further work by the Inland Revenue Department into simplifying
the tax obligations of small and medium sized enterprises,” Revenue Minister Michael Cullen said.
“For many small businesses, the compliance costs of tax are the biggest bugbear because they do not earn enough to incur
big tax bills but have to plough through a lot of paperwork to establish that. And tax design tends to focus on the
dynamics of the large corporate, often at the expense of the smaller enterprise.
“Yet small businesses dominate our economy, are an obvious source of economic innovation and offer us the best prospect
for raising our sustainable growth rate,” Dr Cullen said.
The IRD received a total increase over the four-year period of $146 million. Of the $129 million balance; $4.2 million
would go into new debt and hardship rules, $98.8 million into maintaining the tax base and $26 million into audit
activities.
“The increased enforcement budget is expected to generate a net fiscal gain for the Crown of $79 million a year, $317
million over four years. This is money the government can invest in social services and infrastructure for the benefit
of all New Zealanders.”
The government had been considering a number of recommendations from the McLeod Tax Review on the international tax
regime. Those still to be consulted on were the introduction of a time-limited tax exemption for new migrants, not on
their New Zealand income, but on income sourced from overseas and the application of the risk free rate of return method
to offshore equity investment in a private rather than a business context.
Consultation on both proposals would be in accordance with the normal Generic Tax Policy Process, Dr Cullen said.
“I have ruled out the $1 million tax cap proposal as inequitable. I have also been advised by my officials that the
proposed 18 per cent tax rate for new foreign direct investment is unworkable.
“They believe it would be impossible over the longer-term to maintain the boundary between new and existing investment,
with a potential cost to the revenue of $500 million a year, and that it would not produce benefits of anything like
this order to New Zealanders.
“However, before rejecting the idea, I will release their analysis for comment from interested parties,” Dr Cullen said.
Ends