Media statement Wednesday, February 27th, 2008
Government out of touch with business: airport bid
Retrospective changes to the tax rules by which companies organise their funding shows the government is out of touch
with business, the Employers & Manufacturers Association (Northern) says.
"Any company should be free to arrange its capital and debt without risking last minute law changes," said Alasdair
Thompson, chief executive of EMA.
"Government's law change to prevent the Canadian Teachers Pension Fund bid for 40 per cent of Auckland airport shows up
the need for sound legislative process.
"Provided shareholder equity and debt instruments are established according to good business practice and sustainable
debt to equity ratios, no government should interfere with them.
"The government's concern was the difficulty it would face in collecting tax off the interest paid to foreign
shareholders.
"But there are there other ways this could have been done, for example the withholding non-resident tax on interest and
dividends could have been increased. At the very least, rushed decisions lead to poor law.
"For business, the issue is not so much what they have done, but how they have done it, and it begs the question how far
the government will go in applying the same principle to other businesses.
"Most private companies are set up with a high proportion of money borrowed from their shareholders and a low proportion
of shareholder capital.
"This is to allow the company to pay the owners more taxable interest and less taxable dividends, which is good for the
company's growth because the interest paid is a deductible expense for the company whereas dividends are not a taxable
expense. Will the government attack this long standing practice too?
"The message being heard is the government does not want business investors to risk money by growing their companies for
the good of New Zealand. What does that do for our international business reputation?
"Why was this retrospective law really rushed through? Was it a deliberate back door attempt to stop the Canadians'
bid?"
ends