TaxBlog

The National Government has moved to enact it’s five pronged attack to help small business.

The five key measures annouced are:

1. Tax changes,
2. Expanding the jurisdiction of the disputes tribunal
3. Expanding the role of the Export Credit Office,
4. Expanding business advice services, and
5. Creating a fast-payment requirement for government agencies.

See our coverage of numbers 2 -5 below:

Key has directed Government departments to pay bills promptly

State Services Minister Tony Ryall has announced that government departments have been directed to make sure they pay their bills on time, or earlier, especially invoices from small and medium-sized business suppliers.

The Government has told the State Services Commissioner Iain Rennie it expects all departments to urgently review their process for approving and paying invoices to their suppliers, and to bring forward payment dates where possible.

Government agencies are to, at a minimum, pay their invoices in accordance with their posted terms and conditions, and in any event, no later than the 20th of the month following the receipt of the invoice.

“Government agencies are substantial customers for many small to medium sized businesses. By ensuring these agencies pay their bills on time or earlier, we can help with business cashflow.

Changes to the disputes tribunal:

“Currently, the maximum claim level of the Disputes Tribunal is $7,500, or $12,000 with the consent of both parties. To make life easier and cheaper for small businesses, the Government will lift those levels to $15,000 and $20,000.

“This change will reduce costs in up to 3,600 cases a year which will now be able to be held in the Disputes Tribunal. Previously these cases would have been held in the district court and many would not have been pursued due to the costs involved.

“This is designed simply to lighten the load on small and medium-size business so they can get on with the business of producing goods and services.”

Free Advice service for businesses has been expanded:

The assistance includes a rejuvenated Biz 0800 hotline, free business health checks, and a free mentoring service.

The advice can extend from dealing with cash flow, to management strategies, the best ways of trading through an economic downturn, and how to maximise the advantages from the range of other government initiatives announced today.

“Many of these services have been available previously in some form, but they will be of greater value now if a small business operator comes under stress,” Mr Brownlee says.

The last change relates to trade credits:

“The global financial and economic downturn has affected the availability of short-term trade credit in New Zealand, making it very difficult for some exporters – particularly small-to-medium exporters – to continue trading in some countries,” says Mr Groser.

“These new measures will help to ensure trade opportunities won’t be missed – which is crucial in the current economic environment.”

NZECO has previously provided trade credit insurance only for contracts with payment terms of more than 360 days. This will be extended to include periods of fewer than 360 days.

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There are quite a few articles out today discussing introducing a CGT to make housing in New Zealand more affordable.

This has been mentioned quite a bit lately in the attempt to make housing more affordable. In the first link below the The New Zealand Manufacturers and Exporters Association (NZMEA) say:

The almost unique absence of a Capital Gains Tax in New Zealand is one of the factors that drive this outcome. It is clear that the tax rules favour assets over activity.

Their arguments are:

“What is there to fear from a Capital Gains Tax that does not affect the family home or increase the overall tax load? We need to balance the tax treatment of all gains and income to encourage more investors into the productive sector of the economy where jobs and wealth are really created.”

“A Capital Gains Tax has long been framed as politically untenable in New Zealand, but it is difficult to see why, when it will both make housing more affordable, and help create jobs and real wealth. If the Government is serious about improving productivity and creating jobs then this would be a good place to start.”

The NBR article follows a similar path quoting the EMA, but interestingly also has an article about how other factors incuding the Resource Management Act (RMA) are to blame for the low housing affordability.

In response to the calls from the EMA Revenue Minister Peter Dunne has two press releases. He states:

“It’s a hoary old chestnut and it’s time it was put to rest once and for all – no government is going to bring it in,” Mr Dunne said.

“The idea of a general capital gains tax has been around since the 1980s but has never gained any real support.

“As I’ve consistently said, it is simply not going anywhere and the time has surely come to bury it because no government will ever implement it, so these periodic discussions on it are a waste of time,” he said.

Mr Dunne said it would be political suicide for any government to implement, and it was time that “the theorists and ideologues understood that”.

I agree with Mr Dunne that it would be political suicide for a government to introduce a CGT. This is uniquely so because of New Zealanders love of bricks and mortar investments. Part of this may be due to the lack of quality capital markets here (stocks and bonds).

However in theory a CGT would remove some of the distortions in the market that currently incentivises people to purchase property. Mr Dunne offers no reasons to refute this. Perhaps such a move would also increase investment in private equity and small business.

Links:
2nd most unaffordable housing – balance tax system
Capital gains tax would help housing affordability
People don’t like tax reveals Peter Dunne
Dunne: Mothball capital gains tax idea

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Another interesting Herald editorial is out suggesting that there should be some kind of tax releif on interest.

The editorial is written by a guy called Jean Albert who is a “specialist in international law and a consultant on taxation, trade and competition.

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Business is calling for a raft of tax changes to alleviate its cash flow problems.

Furthermore there are provisions in the current system which require you to revise your profit estimates and make payments accordingly.

This seems to me to be a knee jerk reaction.

(I put the question mark above because it seems like a couple of people want an overhaul and the article claimes that these people are representative of all NZ business)

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The NZ Herald editorial is claiming that capital gains tax is viable and perfect for the financial climate

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The Centre for Independent Studies raises valid issues say Chartered Accountants

The Institute of Chartered Accountants says that it supports the broad-based low rate approach for the tax system advocated in the “How to fix a leaky tax system” document released by the Centre for Independent Studies today.

“While we may not agree on all points of the report, the Institute agrees that the interests of all New Zealanders are best served by a tax system with a structure that is as low and flat as possible.”

“New Zealand’s tax system has moved away from this in recent years and the future is not looking too promising either,” tax director Craig Macalister said.

“A tax system should be simple in its application, certain in outcomes and perceived as broadly fair. It should also be designed to minimise distortions to the economic behaviour of taxpayers. This means a tax system that taxes business as it finds it – rather than creating incentives for business to change itself to adapt to the tax system.”

“While there will always be ideological debates about the level of taxes people pay, a complex system ultimately benefits few at the expense of all.”

“Even those responsible for administering the tax system are warning about its fragility.”

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There is an excellent article written by Rob McLeod on the deadweight cost of taxation.

You can read the article here.

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Probably the most important tax policy story in recent decades has falling statutory tax rates on capital income. As companies and financial capital have gotten more mobile in recent years, tax competition for jobs and investment between countries has forced down statutory tax rates on capital income around the world, particularly throughout Europe.

But how far can this trend continue? Should lawmakers abandon taxes on capital income altogether, and focus on taxing consumption instead? Those are the questions addressed in a provocative new paper from CESifo, a Munich-based research group, titled “Should Capital Income Taxes Survive? And Should They?”

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In a shock story today there is talk that the trust tax rate may rise to 36%.

The government is facing a second major rebellion over its tax policy amid growing certainty that it’s planning to raise trust tax to 36 per cent.

The potential tax grab, which would affect hundreds of thousands of New Zealanders, has prompted opponents to form a fighting fund aimed at forcing a government rethink.

The protest follows a storm of opposition to legislation introducing a capital gains tax on overseas investments.

The Trustees Association believes the government is plotting to raise the trust tax rate from 33 per cent as part of its proposals to drop the company tax rate. Not only would the trust tax hike help compensate for reductions in the company tax take, it would also hit back at people using trusts to shelter their assets from the taxman.

The plan would create a new range of rates, with company tax cut from 33 per cent to 30 per cent, top personal tax cut from 39 per cent to 36 per cent, and trusts increased from 33 per cent to 36 per cent.

Association chief executive Errol Anderson said the plan would mean that children, often the beneficiaries of trusts, would end up paying more tax than giant corporates.

“That’s a very cruel tax -targeting people who can’t defend themselves. (The government) will see trusts as an easy touch for raising tax, unless we unite,” Anderson said.

Though no final decision had been taken, Dunne admitted one option, backed by the IRD, was equalising the top personal trust and income tax rates at 36 per cent, and added that the government had crunched the tax numbers on tax paid by trusts.

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Phil has some excellent insight and analysis on the current tax changes:

In less than 24 hours three major government projects in the financial services sector have been put back. The Ministry of Economic Development, yesterday, said that it is giving another month for submissions on adviser regulation and today a raincheck has been given on KiwiSaver and tax changes.

A question one must ask is this: Are these policies such a mess that the government is about to start back peddling on them?
Put another way: Are they so ill-thought out and in urgent need of a rethink that extensions are a good way of buying time to find a fix?

My guess is no on KiwiSaver and possibly yes on tax.

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