Tax measures that tinker

2013 - 14 Budget Brief

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Tax measures that tinker

Higher taxes pave the path to the magical 2014/15 surplus - and as a reward taxpayers receive ACC premium reductions and tax measures that are largely tinkering around the edges.

Yes ACC premium reductions put over $1.3 billion back into the economy over the next two years, on the other side of the ledger personal and corporate taxpayers are expected to each contribute over $1 billion more in the 2013/14 year.  This has to be fuelled by higher profitability, higher employment and higher wages. 

The elephant in the room that this Budget ignores is both global and local uncertainty.  The looming election could well see a change of Government with the pre-election regulatory uncertainty and the lock-in impact from the introduction of a capital gains tax.

The Budget introduces measures to clarify the tax status of black hole expenditure along with research and development tax breaks for small innovative businesses and these are welcomed.  What would be even more helpful is to create certainty around the runaway use of the tax avoidance rules and to assure New Zealand businesses that we are actively participating in global moves to tax international companies.  The danger zone for New Zealand is the measures for countering global tax base erosion and working towards a fairer system of profit-sharing also has the potential for New Zealand to lose some of its existing corporate tax take.

As a country with a highly mobile work force we are more vulnerable than we may want to admit.  At a personal tax level only thirty percent of our population earn over $40,000 a year and this group pay over 80 percent of our personal taxes.

Based on OECD comparatives New Zealand corporates are paying more than their share of taxes and our corporate tax rate at 28 percent is higher than the OECD average of 25.5 percent. Despite the counter argument that we have an imputation system, on the international scene this means we are not competitive.  At the personal tax level our tax rates are lower than many of our major trading partners, comparable to Australia and higher than the United States.

Property investors are once again the target of the tax office with another $7m handed out to squeezing $45m in extra taxes from property investors.   With around $7.1 billion a year of taxes lost due to the great untaxed cash economy, the Budget does not mention anything about targeting tax evasion.  While it is easy to argue the cash economy will always exist, these cash businesses jeopardise our legitimate taxpaying businesses who struggle to compete on price. Not continuing to proactively and loudly target the cash economy is in my view unacceptable.

Other than establishing a taxpayer appreciation society or stopping anyone earning over $40,000 a year leaving the country we need to do more to create as much certainty as possible on the tax and political front, as without this the foundation for growth is not stable enough.

Yes, we want the Budget to be boring and steady as we go – this one takes this to another level with an apt description of sleep walking our way to a budget surplus. 

Taxpayers are both highly mobile and very sensitive to the environment and this Budget falls short of providing a solid foundation on which businesses can ensure they achieve above average growth rates. 

Joanna Doolan is a Tax Partner with EY phone 09 3007075 0274935627.