One size does not fit all

The Canterbury Manufacturers’ Association (CMA) is calling on the Government to implement a targeted tax regime that supports the tradable sector and promotes investment into productive enterprise that will stimulate the economy and reverse the expanding current account and trade deficits.

Chief Executive John Walley says that the Government has stated that New Zealand’s economy needs to undergo transformation through hi-tech, and other value add industries and is encouraged that Michael Cullen has recognised the need to provide tax relief for Research and Development. However, Mr. Walley says that this development process requires increased and sustained investment and that the “Government needs to match actions with words”.

The CMA says that in tax policy, one size does not fit all. If New Zealand hopes to see the productive sector develop, the tax system is the most powerful tool the Government has to hand. The Association agrees with the Northern Employers and Manufacturers Association (EMA) that grants are wasteful; however the CMA supports the call from real Auckland manufacturers that assistance from a tax system that supports productive activity is vital if the New Zealand Economy is to be transformed.

Mr. Walley says that the Government has the chance to move decisively on a tax policy for growth in its discussion paper due out this month. If it fails to do so, then New Zealanders’ will continue look towards investing their savings in passive rather than productive assets. “The concern is that such investments will continue to fuel the domestic economy, and the external deficits. Sooner or later the correction will come and it might not be pretty.” Mr. Walley said.

Mr. Walley says that the issue of taxation has become a vote catcher and a vote killer. The Government is to be congratulated by following through on the business tax review and the hints so far are encouraging. However, a one size fits all approach will not fix the problem and an approach that encourages and promotes the productive sector has a chance of addressing economic growth and the external deficit – incentives for research and development, depreciation on productive assets and patents, incentives for vocational training, personal incentives for productive investments in start-up companies, capital gains tax - all have a place in a made to measure system.

“Changes to taxation will always be contentious but this tailored approach has a hope of addressing the external deficit and improve living standards at the same time – that is the real trick.”

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