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Dr Muriel Newman

Creating a Legacy of Growth

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Winston Peters, the 2017 General Election ‘Kingmaker’, is yet to choose New Zealand’s new government.

The widespread speculation that the coalition negotiating window set by New Zealand First was too tight, has turned out to be correct.

Negotiations started on October 7, when the special votes count was released, and ended on October 12, when the writ of the official election results was delivered to the Clerk of the House of Representatives.

According to news reports, New Zealand First’s negotiations over policy concessions with both major parties have now been concluded, and the options for forming a government are being discussed by Caucus. The Party’s Board is due to meet in Wellington on Monday, and a decision on the country’s governing arrangements for New Zealand’s 52nd Parliament is expected early next week.

There are three main options for the new Government. A full coalition deal with either National, or with Labour and the Greens, would see New Zealand First as part of the Government and their MPs as full Ministers inside Cabinet.

A second option is a support agreement whereby New Zealand First would offer confidence and supply to either National or Labour and the Greens, in return for some ministerial posts outside of Cabinet.

And a third option is for New Zealand First to sit on the cross benches negotiating each item of Parliamentary business, with either a National or a Labour-Green minority government, through a confidence and supply agreement, or an agreement to abstain on confidence and supply.

Regarding the policy negotiations, Winston Peters has said he is “very very pleased that we’ve actually got it finished. We’ve got a seriously comprehensive dossier from both sides.”

It is understood that since the face-to-face discussions to date have only involved policy negotiations, any decisions regarding Ministerial positions will be negotiated by phone or text.

It turns out that New Zealand First is not the only one to need the approval of Party representatives before a coalition deal can be agreed. Parallel discussions have been taking place between Labour and the Greens, which requires the approval of Green Party members before it can be finalised.

A negotiation team, made up of the Green Party leader James Shaw, their Chief of Staff and three other members, must gain the agreement of a Negotiation Consultation Group, which is a group of ten, with half of the members chosen by the caucus and half by the party. Any final deal is then put to electorate delegates at a Special General Meeting of the Party in order to gain 75 percent approval. 

When it comes to the question of which of the policies that Winston Peters campaigned on, have been prioritised in coalition talks, apart from a hint that some form of foreign ownership restrictions are in the mix, it is all pure speculation.

However, with the Party stressing over many years that there is an urgent need to boost the economic prospects of regional New Zealand, and to bolster export growth in particular, surely they will have prioritised their election promise to reduce company tax over three years to 25 percent – and the tax on export generated income to 20 percent.

The point is that while New Zealand’s company tax rate was, at one time, one of the lowest in the OECD, we haven’t kept up. At 28 percent, our company tax is now one of the highest. That makes it extremely difficult for Kiwi exporters to compete in global markets – especially once the cost of transport and the other disadvantages of being a small country at the bottom of the earth are factored in.

All around the world, company tax rates are falling, as countries compete against each other for business in the global marketplace. In Europe, corporate tax rates have declined from an average of 40 percent in 1980 to 18 percent in 2017, with Switzerland the lowest on 8.5 percent, followed by Hungary on 9 percent.

Some countries introduced significant cuts to company tax years ago in order to position themselves as a magnet for international business.

One of the best known is Ireland, which in 2003 reduced the tax on business profits to 12.5 percent. In 2015, it further reduced the corporate tax rate to 6.5 percent for business activities arising from research and development that has taken place in Ireland. Their objective is to attract these high value jobs to the country.

In 2010, Singapore followed Ireland’s lead and introduced an exemption that reduced their corporate tax rate of 17 percent to 8.5 percent for business income up to S$300,000.

In fact, since the global financial crisis, the downward trend for company tax has been accelerating around the world as governments have lowered their rates to chase GDP growth.

In the UK, corporate tax will be reduced from 19 percent to 17 percent by 2020. Next year in Sweden, the centre-left minority government will cut corporate tax from 22 percent to 20 percent. Corporate taxes have recently been reduced in Japan, Spain, Israel, Norway, and Italy.

At the present time, only six countries – the US, France, Belgium, Mexico, Australia and Greece – now have corporate tax rates that are higher than New Zealand’s, and almost all of these are in the process of reducing their rates. In Belgium their 34 percent tax rate will be lowered to 25 percent by 2020, with a 20 percent rate for smaller companies to be introduced next year. In Greece, the 29 percent corporate tax rate will be lowered to 26 percent by 2020.

In France, President Emmanuel Macron has promised to reduce corporate income tax from 33.3 percent down to 25 percent over the next five years, and in Australia, company tax is set to reduce from 30 percent to 25 percent over a ten year period. 

Contrary to what the critics say, over the long term, reducing company tax does not result in a loss of revenue, since the incentive effects of lower taxes broaden the tax base, boosting economic growth and job creation.

In Canada, when the federal company tax rate was reduced from a high of 38 percent in the mid-1980s to 15 percent in 2012, tax revenues increased to greater levels than when the rate was more than double.

It was the same story in Britain – in the 1980s when corporate taxes were 52 percent, revenue was equivalent to 2 percent of GDP, while in 2015, when the rate was lowered to 19 percent, tax revenue was higher at 2.4 percent of GDP.

To remain internationally competitive, it is crucial for an export based economy like New Zealand, to have lower business taxes – especially now that the US is planning to slash their corporate tax.

While the United States has one of the highest company tax rates in the world at 35 percent, the reality is that for more than 30 years American companies have been reducing their tax burden by merging with foreign firms and shifting their tax bases abroad.

Called “corporate inversion”, it started in 1982, when McDermott, a New Orleans based construction company, moved its headquarters to Panama to escape the US tax net. Now more than sixty major US companies have head offices based overseas in more than a dozen countries, with Ireland and tax-free Bermuda, the most popular.

The United States remains the only developed country to tax the worldwide income of its business corporations. This means that foreign income is taxed by the source country and then taxed again once it is repatriated to the US. As a result, many Americans keep their capital offshore, instead of reinvesting it in the US. Piles of cash are “stuck” overseas – so the companies can avoid the US’s punitive taxes. 

However, reform is now on the way through a raft of fundamental tax measures being proposed by US President Donald Trump. There are four main components to the reforms – simplifying the tax code, reducing taxes for Americans, making US tax rates more competitive internationally, and enabling Americans to repatriate the trillions of dollars that are currently kept offshore so the money can be reinvested in the US economy.

In the words of President Trump, “It is now time for all members of Congress – Democrat, Republican and Independent – to support pro-American tax reform. It’s time for Congress to provide a level playing field for our workers, to bring American companies back home, to attract new companies and businesses to our country, and to put more money into the pockets of everyday hardworking people.”

A key to his proposal is a reduction in the corporate tax rate to 20 percent – the largest such reduction in US history.

This week’s NZCPR Guest Commentator, Professor Richard Epstein of New York University has reviewed President Trump’s proposed tax changes:

“The Trump administration should be praised for its effort to rationalize the taxation of corporate income, by seeking to bring the United States in line with international norms. Right now, our system of punitive double taxation – on profits earned both at home and abroad – encourages American firms to park literally trillions of dollars in profits overseas, revenue that could stimulate domestic investment if brought home. And while the current corporate tax rate of 35 percent may have been competitive in the 1980s, it is far too high in the current global market where the worldwide average is now 22 percent.”

Donald Trump’s proposed reduction in corporate tax will accelerate tax competition around the world. China’s leaders are worried that the planned cut in the US rate will spark a ‘tax war’, threatening China’s growth as other countries lower their tax rates to increase their competitiveness. This has led Chinese President Xi Jinping to propose cutting China’s corporate taxes and reducing regulation in order to ensure the country’s competitive edge is maintained. 

Professor Epstein however, believes the changes being proposed by President Trump do not go far enough. He believes a low ‘flat’ tax should be the ultimate goal of tax reform:

“Politics aside, the best tax plan is also the simplest: I have long advocated that the sole source of general revenues should come from a flat tax…  Low flat taxes are intended to stimulate economic activity. They would also work to eliminate the strategic advantage for taxpayers to divide their income among various entities, such as trusts, foundations, and family partnerships.

“Flatter taxes would also reduce administrative and compliance costs dramatically. Finally, they would make it more difficult for large political majorities to target wealthier individuals for large transfer payments, a feature of the current tax plan that creates an unstable political dynamic. It is just this approach that explains why Estonia, which adopted this system in 1994, has the ‘the most competitive tax system in the developed world’.”

When considering company tax cuts, the Harvard Business Review – in a comment that could apply equally to New Zealand – notes, “Of all the policy changes that could improve the competitive position of the United States and the living standards of Americans, revamping the corporate tax code is perhaps the most obvious and least painful. High corporate taxes divert capital away from the US corporate sector and toward non corporate uses and other countries. They therefore limit investments that would raise the productivity of American workers and would increase real wages. This is the cruel logic of a corporate tax in a global economy—that its burden falls most heavily on workers.”

Right now, Winston Peters has a unique opportunity to lead New Zealand into a far more competitive future. By holding firm to his commitment to cut the company tax rate he can deliver on his promise to create jobs, boost the economy, and lift the living standards of all New Zealanders.

Let’s hope he has the foresight to recognise just how important creating this future legacy of growth for New Zealand really is.


Would you like to see lower tax on business as part of a coalition deal?

*Poll comments are posted below.


*All NZCPR poll results can be seen in the Archive.

Click to view x 120


Yes but only if individual tax rates are not increased. Brian
For all its difficulties, it represents the views of New Zealanders better than FPP [where winning an electoral seats depends so much on boundaries and demographic changes] and is therefore more democratic. We claim to be a “Democracy”. Rochelle
Lower taxes means a more buoyant economy, which benefits the people of the country.  Pierre
Very logical, with plenty of real world evidence to show the net positive tax benefits. Henry
How much money do they need to make. Please don’t tell me its good for business and consequently good for workers. Remember the the lady who worked in a packing facility in Gisborne, she asked Bill English if he thought a $3.00 rise in 9 years was reasonable. He had no answer, when politicians make contact with the real world they register as being completely out of touch. Remember John key when he spoke with a solo mum prior to the last election, totally out of his comfort zone, made promises he never kept. Frank
Flat and low rates are the way to go. It has been proven that lower tax rates do not reduce the tax collect as the incentive to avoid is reduced to uneconomic levels and so these avoidance schemes are not initiated. The Rich Prick view is that the rich need to pay their fair share A 10% tax on all income will give tax of $3000 tax take on a $30,000 income and $10,000 on a $100,000 income WHO IS PAYING MORE. Robin
This would presume that the top marginal rate for individual would stay at 33%. What thought has been given to company dividends, re imputation credtits and RWT? Brian
Best would be a lower flat tax for every person, group, business,or entity, with no exceptions, no sub clauses, no freebies. Joyce
Definitely. Clark
It’s a no brainer. John
Great idea David
Maori corporations need to pay tax in line with every other corporation. Monica
Yes a good idea if it gives companies a boost in income which would be used to improve their operation. Not so good if it merely adds to shareholders pickings or leads to an increase in GST. Chris.
Most certainly provided personal taxes are also lowered Jim 
But stop increasing welfare payments which eat up large amounts of money. Parents need to be responsible for their teenage offspring instead of drop outs going straight onto benefits. Parents then may force some of the 90,000 unemployed youth into going to work. We need lower taxes all over and less waste from our Govt departments with little accountability. Trump has the right idea but cannot get support from congress. Carolyn
Whilst tax rates need to be lower to match overseas rates it will take a far broader change to NZ business law to encourage businesses to stay in (never mind move to) NZ – eg. ability to dismiss poor performing workers, higher standards in literacy and numeracy (ie. education), better infrastructure, lower compliance costs, better incentives to train people ‘on the job’.  Gary
The handouts and other promises have to be paid for. Warren
A Lower Corporate Tax is an incentive in itself. There would be less ‘Dodging’ by a Corporate as it’s just not worth it with a lower set Tax. Geoff
The mass of smaller businesses need help. The big boys are geared to manage tax liability better as it is. Edgar
Either the rich, who can afford it, are taxed, or the poor who cannot afford it, are taxed. Peter
Our tax should be a low flat tax rate on all income above a slow basic level Bryan
We need to encourage company and innovative growth. Ross
It goes without saying Graeme
Small businesses are the backbone of all strong economies as well as the largest employers. Government should be doing everything in their power to encourage and assist the business sector to ensure economic growth. Reducing the tax burden on businesses and workers alike will build the economy. Steve
Flat tax actually works – the sooner it is introduced in NZ the better off we shall be Michael
Yes, It is businesses that give us employment and earn us money overseas that in turn keeps our over generous social welfare state operational. We should at least be at the lower end of the average world company tax rate.  Eric
Anything which helps the future Financial Stability of this small country of our has to be advantageous to all. Laurel
What an opportunity to achieve some equality – just extend the tax exemptions available to Maori Tribes to cover ALL businesses! Selwyn
Makes sense. If other trading partners are doing so they would not being doing so out of ignorance. Dennis
20 years late. Wayne
My immediate response is how is this going to guarantee that the savings that Companies make will be “shared” with the people of NZ in e.g. lower prices for food – not the extortionately priced export rejects that we get let alone importing the Organic? food imported from China. Ref: MAF Di
10% and increase tax on high incomes Earners. John
That would be good but where will the money come from to replace it?? Steven
Yes and then roll these out to all. And pay for any short fall if that is found necessary, by reducing most of the soft (and bribing) ‘vote for me’ entices. Stuart
Seems like a logical move to stimulate growth Neil
Muriel’s excellent article makes it very clear why we need to do this. Personal tax reductions are only populist and are designed to buy votes. Commercial reductions, especially decent reductions like down to 15- 20% which will attract foreign investment, and create real jobs and increased wages and salaries. Ronmac
As long as we all pay a fair share of the burden Gerard
[Yes] Company tax get passed onto the consumer, and money is not available for expansion, so the common people are hurt twice over. $13 billion is currently raised by company taxes. If a reduced rate, then the difference needs to be made elsewhere. Preferably this should be by reducing Expenditure. NOT by raising any new tax(es), like a Capital Gains tax {I agree with what Carol wrote “It is ridiculous that a country…”} Peter
We have no choice. Keeping NZ corporate tax higher than competitors would be business suicide. Geoff
Consistent with Milton Friedman’s view, only real persons should pay income tax. There the corporate rate should be ‘zero’! Colin
An obviously beneficial action to promote exports and jobs. Allan
Got to be good. Andrew
We should LEARN from overseas companies how good it is & DO IT Cindy
Why Not Elsa
As a nation which is heavily reliant on exports to maintain a strong economy, it makes sense to rethink any policies and procedures that may prove to be a hindrance to this, in the future. Scott 
President Kennedy said over 55 years ago that if you want to increase the total tax take reduce the individual tax rates The same would apply to company tax rates. if is more profitable to work harder so this is the reason the total tax rises. Just look at the examples in this weeks article if you want proof. Colin
I guess the proper and sensible answer to this is Yes. Unless you are a Green Party supporter or a Left Wing Idealist. (Not very much of a difference between either of them really). What would really beneficial, would be a Coalition, determined to pay off our Debt, both Public and Private; further encourage a long lost attributed namely thrift; increase our exports and that means our ability to better the world with our agricultural expertise in cost and quality. Move away steadily from State dependency, and back to individual responsibility; at the same time reducing our expanding expensive bureaucracy which is draining this country dry. Naturally in a world still committed to John Maynard Keynes economic policy that %u201CA little inflation is acceptable%u201D it alleviates Western Politicians of having to take those really hard decisions that will reduce our dependency upon inflationary economic policies. If President Trump lives up to his electoral policy and Brexit becomes a reality, then there is hope for us all. The policy of placing today%u2019s fiscal burden on subsequent generations and escaping any condemnation of reckless spending by our elected and non-elected Members of Parliament must be eliminated. We might then consider our Parliament worthy to lead our Nation again. Brian
Provided it means an increase in pay for employees. Andrew
It’s a pity it depends on our crazy govt-making system – it should have been done by the Nationbal Govt long ago. Bernard
It is essential. Garry
Yes with some guarantee’s that the large corporates pass some of this income to workers and CEO’s don’t see this as chance to increase their salaries though bonuses.  Robert
Go for it, it will help all Geoff
Absolutely! Barry
An important task a of government is to set a climate in which business can prosper and therefore stimulate the economy – more jobs, a boost to exporters.  Laurence 
Makes sense. Ron
High taxes is the preferred regime of left wing rulers whose basic belief is that every one should be reduced to a minimum level of existence, except of course the Government members themselves. The very reason for taxation in the first place is to provide revenue to pay for services that help everyone. i.e. health, education, roads, railways etc. However, the tax system has become so distorted over the decades with successive governments tinkering with it, that it now requires an army of accountants to protect taxpayers from an IRD attack. Not only should tax on business be reduced, the system should be simplified so that ordinary folks can submit a tax return on a single sheet of paper without running the risk of being vilified by IRD. Dianna
Lower taxation on business is always beneficial in that allows more profit to expand production and increase employment. Lower taxes across the board would be ideal as they would as well as the above necessitate more personal responsibility and that cannot be a bad thing. On the other hand some inefficient tax-created and tax supported businesses would be taken over by more efficient businesses or go out of business altogether…….and that could be a good thing. Unnecessary government business bureaucracy would take a justifiable hit also. Small and limited government – bring it on ! Don
Lower the rate – get more tax – a no brainer! Auntie Podes
All business shuld pay lees in taxes and some of those savings would go back into growth and improve wages as well. Ken
Logic must always prevail Brian
For the reasons explained in the accompanying article. MAURICE
Yes, so long as the general public see the benefits of the lower tax. Elizabeth
If reduced then the general public will be obliged to make up the difference. John
NZ needs to be more competitive internationally Lois
And make the rate equivalent to all those businesses owned by “charities” (which don’t even disperse much of the returns to their needy).  Fiona
There a lot of New Zealanders out there who see bussiness as a bottomless pit Les
I think it is necessary to come into line with the rest of the major World economies. Ian
Others countries have a lower business tax and we should have the same to remain competitive on the world scene. Frank
Get everything moving Barry
Makes sense, 18% should make us more competitive.  John
A flat tax rate is what we need. Sam
In a NZ first National coalition. Justin 
Lower taxes across the board would be even better. Pdm
It’s a win-win for all of us. But have our politicians got the balls.? Ced
If it means a better wage for workers and not into the employers pockets for flash houses, cars and travel. Sue
We need more money coming into the economy, which should increase workers incomes as well. Bill
Country needs more tax, not less Dacid
Yes. We have to compete internationaly. Business do not eat up large on government budgets. BUT! Put a sur tax on excessive salary packages. Doug
Lower taxes on business, and lower individual taxes are policies I support, but not selectively as the question posed. The net effect of lowering all taxes will be geater encouragement to produce as people retain more of the fruits of their labours. The downside is that the familes of those who cannot be bothered to work and live off the state will receive less taxpayer financial support. Greater social division and potential unrest and criminal activity would perhaps ensue, the last thing NZers need.  Andrew
It works in other countries, to grow production. and export sales, and it definitely will work her in NZ. Lloyd
Wealth is generated with the increased velocity of the money cycle – nothing stimulates this better than reducing all taxes – lets start with business but then follow it up with general taxation – the lower and faster becomes the blood of the economy. Rob
The logic is very. pursuasive Tim
Definitely. It is weird that governments can’t see the wood for the trees when it comes to taxation. Willy
We need to do something to lift investment and growth in the manufacturing and export sectors! Growth at the moment is centred around the construction industry, but this does little to increase esports.  Hugh
At present, New Zealand businesses are trying to fight for trade with one arm tied behind their backs. We need a bold move downwards on company tax, in order to give us a competitive edge. If this results in a lower tax take , then government largess will need to be trimmed accordingly. Never before has it been so true as now, to say: “Export or die.” Graham
NZ in among the most highest taxed countries in the OECD. Greg
This would increase export opportunities.  Henk
I think business, send business people already have far too many ways of avoiding tax, they don’t need anymore. I am staggered by the ammount of schemes that accountants have dreamed to allow business’s to avoid tax. Most business’s don’t pay their fair share of tax don’t give them more relief. Most business people avoid paying tax, some are even claiming assistance through working for families because they declare so little of their income. The only way they pay some tax is through gst and even then they can work out a scheme to get it back as some sort of expense. Jock
About time for this to happen Kevin
I’d also like to see a flat personal tax rate Rayward
Company tax needs to be lower. However, any government without Winston Peters would be a good government and I believe that we are heading for some years of political instability for however long any coalition lasts.  Peter
We also need a flat tax rate for the workers as well Colin
We should move as fast as possible to a flat rate of tax. Alan
..also NO TAX on NZ Superannuation payments….the elderly are being ripped off in NZ…!!!! Chris
This would really help the country long term; get the revenue elsewhere but not from fuel and rates. Roy
And lower margins for middle non productive importers Colin
Makes plain old common sense  Mike
New Zealand’s problems with export markets, low productivity, fair living wage, poor savings all stem from repressive taxation that saps incentive and kills efficiency. A better option would be to increase GST to 20% and eliminate all income tax, reduce company tax to 20% and eliminate all tax on the first three privately owned rental properties, That should incentivize the building industry, increase savings and slightly increased consumption would improve teh GST take. Time Limiting non medical and non super welfare along with the eleimination of income tax would push many off the easy lifestyle choice into service work and substantially reduce the welfare budget. Richard
It is ridiculous that a country that prides itself on being innovative and at the forefront of change can have such a destructive attitude to business tax and wealth creation. We should be doing everything we can to increase New Zealand’s competitiveness and that means lowering company tax. Right now, the goal should be 15% to put us ahead of most other countries and give our Kiwi businesses a read boost.  Carol
Cutting company tax below our competitors is a no brainer. It’s difficult to understand why National didn’t do this long ago, Rodney
A low flat tax is the way to go for NZ. Andrew
Yes, company tax should be cut now below our trading partners. Larry
Lower company tax and lower income tax should be a priority. Heaven help us if we get a Labour-Green government. Ron