A Programme of Phased Cuts in Company Tax

Column – ACT New Zealand

Over-taxing mobile capital is not a good idea not if you want jobs and higher wages anyway. Last week the ACT Leader announced a plan for a programme of phased reductions in the company tax rate, with one percentage point per year reductions …A Programme of Phased Cuts in Company Tax
Over-taxing mobile capital is not a good idea – not if you want jobs and higher wages anyway. Last week the ACT Leader announced a plan for a programme of phased reductions in the company tax rate, with one percentage point per year reductions in the company tax rate for eight years, to a target of 20%. He said Budget 2015 should be signalling continuous improvement in our business environment, and this proposal does that. The idea is to give a clear signal to investors and entrepreneurs of a future tax structure which encourages investment and productivity growth.

Tax Rates, Jobs and Wages
David Seymour also released a six page document reviewing the academic literature on the relationship between company taxes, economic growth and real wages. Tax incidence is a complex topic. Suffice to say, who you tax is often not the one that actually pays the cost. See the research cited in the document.

Funding Tax Cuts
A small slice off the existing plans for expenditure growth could fund part of this, but most could come from existing corporate welfare, which has become steadily more lavish and widespread. How much cash are we prepared to throw down the deepening hole of NZ Rail?

Speaking of Corporate Welfare
It looks like funding another America’s Cup challenge is now off the table – so there’s the first saving from the corporate welfare sector. But last week we discovered that an NZ-based but overseas-owned supplier to the Oracle syndicate was receiving corporate welfare, of up to $17 million! Who wants to argue that this would not be better shared around all businesses via lower company tax rates?

Short Version of the Policy Statement
We need higher wages in New Zealand. But wishing doesn’t make it so. That needs strong business investment to boost productivity. We won’t get any of this without a more competitive tax rate on business.

On Subsidies
If you give subsidies to X, then you will get more of X. Or to be more precise, you will get more of what is claimed to be X. Give subsidies to R&D? Then you will find that a lot of what companies are doing anyway will be labelled R&D. The hands will go out. It’s corporate welfare.

Driving up Mt Eden
Some questions. Are there any reports assessing the claims of damage to the cone of Mt Eden from traffic? Is there any expert measure of the quantum of damage? Have alternative ways of dealing with any such damage been considered, other than banning some or all vehicles? Why does a gate have to cost $100,000? Has any consultation been undertaken with groups representative of the maunga’s visitors? We think we should be told.

An interesting item on the economics blog Marginal Revolution addressed the issue of why the TPPA is a better trade agreement than you might think. The answer? Vietnam. Of all countries, Vietnam is set to gain the most, due to export growth once tariffs drop to 0% on its apparel exports. Isn’t that really what we want? A trade deal where all will benefit, but the poorest countries will benefit the most.

Auckland House Prices
The PM was reported last week as saying: “If there hasn’t been a correction over 45 years, it’s an indication of the fact that at this point — for decades — there’s been a general belief that they’ve been appropriately valued at the time.” That’s the sort of thing they were saying in the US not long before the great housing bust there. He might be right, but this is tempting fate.

Housing Issues
Following reports of advertising in Singapore and Malaysia encouraging people to invest in NZ property, our local TV has shown opposition politicians standing beside apartment construction sites, dismayed that some apartments may be bought by offshore investors. So let’s get this straight. We are panicking because foreign capital is helping to employ thousands of kiwi builders, plumbers, electricians, cement truck drivers, steel workers etc, to build apartments which will be rented out to NZ residents for probably quite modest rentals. What might be the end point of all of this? Probably more houses and apartments built than needed and cheaper than otherwise rent.

Migration and Housing
Winston Peters often identifies genuine problems, then uses that observation to peddle unpleasant nonsense to his political constituency. The latest example was his comment last week related to the strong inflow of migration and the slow growth of infrastructure to support this population growth. That is a genuine problem, and of course one that everybody is aware of. The next step is to diagnose the problem, and advocate for a solution. We all know what that is. Put some pressure on councils to stop blocking development, and fix the related RMA problems. That is all tough work. You need to be on top of the details. You have to fight the vested interests. You need to work with other political parties to fix a problem which is at the root of so much poverty in NZ. Instead of all of that, Winston’s approach is to say this: “You pick up the Herald today, you’ll find we’re the third-most popular destination for what? Chinese crooks. That would alarm us in most parts of our history, but right now we’re numbed down to accepting absolute crap.” It’s pitiful really.

Real Life
Racial tolerance is not a chattering class matter. It directly affects people’s quality of life. In the Epsom electorate, David Seymour encounters Asian residents who suffer frequent verbal and occasionally physical abuse due to racial intolerance.

Dame Susan Devoy?
The Race Relations Commissioner has been curiously silent.

It’s Tough to Kill Bad Regulation
Apparently there are raisins stored in California warehouses as part of the U.S. government’s National Raisin Reserve — who knew? The program is part of post-World War II-era program that forces raisin producers to give part of their annual crop to the government to prevent an oversupply of the dried fruit. A Supreme Court challenge may bring an end to it. But it’s a case study in how difficult it is to kill off even the daftest regulations.

Anzac Day
On the centenary of the first Gallipoli landings, David Seymour attended three different Anzac ceremonies, including at the Auckland War Memorial Museum where he had the honour of laying a wreath alongside Auckland Central MP Nikki Kaye. A commemoration of those who made the ultimate sacrifice for freedom, and a poignant reminder of our peacetime privilege.


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