NZ Employers Group Calls For Corporate Tax Reduction

by Mary Swire, Tax-News.com, Hong Kong

10 July 2002

Writing in the New Zealand Herald on Tuesday, the Chief Executive of the Northern division of New Zealand's Employers and Manufacturers Association, Alasdair Thompson urged the government to reduce the corporate tax rate from 33% to 20% in order to increase the country's competitiveness on an international level.

Revealing that: 'New Zealand's 33% company tax rate is now higher than the average in the Asia-Pacific region, or in the OECD. Twelve OECD countries cut their rates last year, including Australia,' Mr Thompson criticised the NZ government's current policy mix, arguing that a predicted growth rate of 3% per year for the next four years will not get the country back into the OECD top ten, which is their stated intention.

Citing a study commissioned by the EMA and Business New Zealand, in which economic consultancy firm, Infometrics was asked to model the economic impact of reducing the corporate tax rate to 20%, Mr Thompson wrote that:

'An important outcome of the analysis was the recognition that changes to the tax system can and would assist growth.' He continued: 'Nearly as important was the realisation that cutting the company tax rate would be fiscally neutral for the government.'

As well as meaning that companies based in New Zealand would retain more of their earnings for reinvestment in skills development, new production capacity, and employment, thus increasing the country's growth rate, the EMA chief argued that a lower corporate tax rate would encourage companies domiciled in New Zealand to report more of their earnings, which in turn would lead to increased tax revenue.

'As Chris Abiss, senior tax partner for KPMG pointed out this year, New Zealand's company tax rate has to remain internationally competitive along with other business costs. If it remains out of kilter for long, we lose out on new direct investment, and on the opportunity to present New Zealand as a profitable place to operate,' Mr Thompson concluded.

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