#5.1 - Mike Corrigan 2010-02-28 01:12 - (Reply)

Many small businesses have struggled over the past 18 months. That fact is that the global financial crisis has affected most people in most countries. Phillip Smith (27/2/10) expresses concerns that “any tax cuts will be pretty much academic” and will not help businesses struggling to recover from the recession. Small businesses may be concerned about a “double whammy” increased costs and “reduced margins”. Margins are not affected by an increase GST as GST does not impact on profitability. Sales may reduce, but history has shown that this is only temporary. It has also shown us that often sales increase prior to the date of the increase, so the net effect is probably evened out. He raises concerns about the ‘Working for Families’ scheme. He is right. It is a poorly constructed mechanism for assisting working families via the tax system. It is just another unnecessary distortion to the direct tax system. A flatter tax system benefits all taxpayers more fairly and doesn’t discriminate against special groups (i.e. working couples with no children). However, any increase in GST will impact on those on fixed incomes (beneficiaries, super annuitants, etc.). The Government recognises this, and that is why adjustments are being made to payments to offset the increases in the cost of goods and services. Smith also rightly points out that NZ has become a low wage economy. This is a key factor impacting on the underperformance of the NZ economy for the past 20 – 30 years. Low wages have been a key driver of Kiwis leaving to live overseas. It is a cliché, but it is true. The only way to increase Kiwis standard of living (i.e. average wage, access of health systems, affordable housing, etc.) is to “grow the economic pie” so we all get a bigger slice. We must create an economy which encourages and rewards enterprise, is internationally competitive, and business friendly, while maintaining our proud traditions of social responsibility. Creativity and business enterprise create wealth – not governments. Governments can only put the necessary structures in place to allow business to thrive and grow, which then benefits the whole economy. A fair, equitable tax system is an integral element of a productive economy. Lower marginal tax rates and a competitive company rate will: - Be and incentive for Kiwi entrepreneurs to operate in NZ, rather than going overseas. - Attract international corporations to operate in NZ, creating increased employment opportunities, and tax revenue. - reduce the necessity for people to arrange their affairs to “avoid” paying high tax rates (e.g. use of trusts, LAQC’s, etc. - be in incentive for “ex-pat” Kiwis to return to NZ. - Allow GST to be utilised as an efficient tax revenue generation system. GST is a non-discriminative tax because it is almost impossible to evade. I think it was David Lange who noted that, “Even drug dealers pay GST”. The proposed changes to the tax system are an integral step in moving the NZ economy to being a modern, efficient and productive economy. Ireland did it successfully in the 1990’s. I believe, with political courage, intelligence and hard work, we can do it too.