Tax cuts can boost investment and lift growth

Encouraging business investment by cutting the company tax rate is a key factor in lifting New Zealand's economic growth rate, says National's Finance spokesman, Don Brash.

Speaking at the PricewaterhouseCoopers National Tax Conference in Wairakei today, Dr Brash questioned why New Zealand has one of the highest corporate tax rates in the Asia-Pacific region, when it clearly needs more investment.

"This relates to the top personal tax rate as well," says Dr Brash. "Since many businesses are unincorporated and the company tax rate is in any case just a withholding tax, the top personal tax rate should also be cut to match."

Dr Brash told the audience he anticipated the Government would eventually cut tax rates, but that it would focus on the "political hot-spot of lower to middle income groups."

"This is affordable because New Zealand has a very large fiscal surplus - which in the current environment is another way of saying that everybody is being grossly overtaxed.

He said that while National has no quarrel with cutting taxes on lower to middle income groups, "it does have a quarrel with leaving it at that."

"Currently, low-income families pay almost no income tax because of things like the Family Tax Credit. A person earning $25,000 a year with a dependent spouse and two children under the age of 13 effectively pays only $27 each year.

"By contrast, somebody in the same family circumstances who earns $100,000 pays more than one thousand times as much income tax."

Dr Brash said that if the Government targeted the company tax rate and top personal tax rate, instead of reducing the taxes paid by low income groups even further, it would provide the right incentive for New Zealanders to grow their businesses and invest.

"As it stands, precious little is being done to influence the key drivers of business investment, little is being done to increase the quantity and quality of capital that the labour force works with, and little is being done to boost the real incomes of the future," says Dr Brash.

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