New Zealand First is announcing today it will campaign on lowering the company tax rate for SMEs to 20% for companies with turnover under $30million, from its current 28% tax rate.
This is a much-needed bold step to encourage more investment by our small businesses that will create higher productivity, expand their business, and employ more New Zealanders.
Corporate taxes can reduce productivity, particularly in entrepreneurial and innovative sectors. Lower company tax rates can improve long-run productivity growth, and stimulate the creation of new companies.
A lower tax rate leaves additional cash available for reinvestment and reduces reliance on bank debt.
It is estimated that the tax reduction will have an initial annual fiscal cost of approximately $1billion. This will be more than covered in the medium term by more companies collectively paying a lower tax rate, higher employment, a growing economy, and more spending.
This is about moving away from policies that give short-term sugar hits to consumers and move toward proper long-term investment in businesses that will grow our economy and increase productivity, increase labour demand, employment, and wages.
A similar move has been made by Australia in recent years and provides a credible international model. New Zealand needs to catch up to key competitors to ensure that we are seen as a country of growth for our businesses that innovate and create productivity and employment.
The OECD consistently ranks corporate income taxes among the taxes most harmful to economic growth because they affect investment decisions and capital formation.
It shows that lowering corporate tax rates encourages investment by reducing the cost of capital, and that corporate taxation can have a negative effect on productivity.
New Zealand needs smart long-term thinking to turn our economy around and get our economy growing.
