Keeping you up to date with topical business news and views.
Keeping you up to date with topical business news and views.
It’s election time! For accountants, this is an exciting time, as new policies are proposed and implemented, giving us some mental arithmetic and new challenges. As business advisors to small and medium businesses, we approached the major New Zealand parties and asked them to share their tax vision to encourage growth and innovation for small to medium enterprises (SMEs). What follows are their responses.
Hon. Judith Collins
NATIONAL PARTY SPOKESPERSON FOR REVENUE
National remains very focused on supporting SMEs, funding a $187 million SME-friendly tax package in 2016. This package will reduce compliance costs and make tax simpler for small businesses as part of the Business Transformation programme being implemented by Inland Revenue.
We’re modernising and simplifying the tax system to make paying tax easier and more certain, reduce the burden of interest and penalties, and help small businesses tailor payments to their individual circumstances.
A modern Revenue system with new digital services and simplified processes has and will continue to reduce the cost of tax administration for SMEs. It will also make it easier for businesses to comply with their tax obligations.
SMEs can now manage their GST online. They can pay GST when they file, set up installment plans, view their GST history and payments online and get refunds sooner.
In February, the government passed legislation to simplify tax processes including reducing or removing use-of-money interest for most business tax payers and contractors are now able to choose a withholding tax rate that suits their needs rather than one being set for them.
From April next year, the new pay-as-you-go option for businesses grossing less than $5 million will provide small businesses with a way to pay tax as they earn income – the accounting income method (AIM).
SMEs will use accounting software to pay their provisional tax as their business makes a profit. It will make a huge difference to new businesses and those with fluctuating or seasonal income.
“The new pay-as-you-go option for businesses grossing less than $5 million will provide small businesses with a way to pay tax as they earn income.”
This will make tax part of running the business, rather than a separate process and it will provide more certainty, and reduce compliance costs for business.
It is a common sense measure that will benefit up to 110,000 small businesses and was introduced in direct response to small businesses concerns with provisional tax. We’re also planning changes to PAYE, including filing directly from software and via MyIR to further integrate tax obligations into a business’s regular payroll processes.
We want to ensure that SMEs can spend more time growing their businesses by making the paying of tax simpler, more certain and less time consuming.
LABOUR PARTY SPOKESPERSON FOR REVENUE
We are happy that many of the proposals that we put up in ‘Flexible tax for Business’ have been progressed. We’ve long argued for a more streamlined tax system for small business, and it is positive that the government (a little belatedly) has picked up on some of our proposals.
However, there is still a lot of further work to be done to ensure that tax for small business works as well as it can. Labour believes that tax should be fair, simple, and collected – and there is work to be done on each of these. At a structural level, Labour has proposed a major review of the tax system through a tax working group. This will examine the overall balance of the tax system – how are we collecting tax, who is paying, are we taxing different assets and areas of economic activity appropriately? It is possible that having looked at these areas, that changes will be proposed for small business.
During the working group process we will specifically consult with the small business sector. We know that SMEs play a major role in our economy and that the impact of tax (in terms of time and complexity) can be disproportionate. We also want to make sure that small businesses are playing on a level playing field by ensuring that multinational companies are paying their fair share of tax.
There will also be some more policy specifics coming out in the near future that will likely be of interest to small businesses. We have discussed setting up a new seed enterprise investment fund (tax incentives for investment in SMEs) that was discussed in the Future of Work commission, and we have signaled our support for the Chartered Accountants Australia New Zealand position that small businesses should not need to spend more than one hour per month on their tax filing requirements.
Labour believes that there is more potential for the IRD Business Transformation project to assist with this, but we do not think that the government is focused enough on pressing the department to really meet the needs of small businesses. For example, the government is currently proposing in tax legislation to remove the small payroll subsidy for small businesses using an intermediary for electronic filing. This subsidy is very important for small businesses who will otherwise struggle to justify setting up their own electronic filing systems. We are fighting to keep the payroll subsidy in place.
“Restoring the Research & Development tax credit will instantly mean that small businesses investing in R&D will be better off, and incentivised to do so.”
Finally, while not specific to small business, our policy of restoring the research and development (R&D) tax credit is relevant. National removed the tax credit and replaced it with a grants scheme which is very bureaucratic and has real barriers for small enterprises. Restoring the R&D tax credit will instantly mean that small businesses investing in R&D will be better off, and incentivised to do so. All large businesses started off as small businesses, and innovated their way to success. Labour wants to back the next generation of SME entrepreneurs with R&D tax credits, so that they can build the next generation of New Zealand firms.
GREEN PARTY LEADER
I’m James Shaw, Green Party Leader and spokesperson for economic development. I’ve worked for big businesses, and I’ve started my own, so I have experienced some of the challenges you face as owners of SMEs, before I entered Parliament.
I want to lead a shift in taxation away from taxes on things we think are good – such as work and enterprise – and onto things that are bad – such as pollution and non-renewable resource use. For example, we will make it progressively more expensive to pollute carbon and use the revenues to fund a tax cut for SMEs and households.
“I want to lead a shift in taxation away from taxes on things we think are good – such as work and enterprise – and onto things that are bad – such as pollution and nonrenewable resource use.”
UNTAXED CAPITAL GAINS
In government, we also intend to close the largest remaining tax loophole by introducing a comprehensive capital gains tax (excluding the family home). A proper capital gains tax will
incentivise capital to shift from housing speculation into the productive sector, lowering our highly leveraged overseas borrowing rates and taking pressure off our inflated exchange rate. This will be good news for exporters.
R&D TAX CREDITS
We will further encourage innovation and value add throughout the economy by boosting R&D funding significantly and giving SMEs access to R&D tax credits alongside the current
grant system. We also have a number of non-tax related reforms which will benefit SMEs:
A MINISTER FOR MANUFACTURING
If you manufacture, National has largely ignored you. We’ve witnessed the on-going simplification of our exports, and the loss of tens of thousands of good paying jobs in the manufacturing sector. We are going to help fix that. The manufacturing sector needs a champion at the highest levels of government, securing a fairer share of its considerable
resources to ensure the sector thrives, diversifies, is able to compete fairly with imports, and adds more value to our exports. The Green Party in government would establish a Minister for Manufacturing, in Cabinet, to better represent the interests of manufacturers.
OTHER MEASURES TO HELP SMES
We will also pull on all the levers of government procurement policy to prioritise Kiwi-made suppliers. We’ll fix congestion in our major cities – not in a temporary way by building more motorways – but by making it more attractive for commuters and students to get to where they’re going by taking alternatives, like rapid transit, walking, and cycling. We will increase funding for universities in the engineering,mathematics, computer science, and the natural, physical and material sciences. The restoration of student allowances for post graduate students will make it more attractive for students to build on their undergraduate education and graduate with higher skill levels.
A CARBON NEUTRAL ECONOMY BY 2050
These measures are all sensible, but they are not the big idea that is going to irrevocably shape our economy for the next 50 years and the place of SMEs in it. The shift to a low carbon economy is inevitable; it’s our choice, as business and political leaders, if we want to step up and respond in good faith to it and profit from the new opportunities it presents. The current path we’re going down, which is to simply try to ignore climate change for a little bit longer, will pass the huge costs of doing nothing on to our children and grandchildren. If you are a business wanting to do the right thing, I want to make it easier for you to lead on sustainability and, at least, level the playing field, if not actively tilt it in your direction. With your help, we can create the first truly sustainable economy in the world – one that our children will one day be proud of.
NEW ZEALAND FIRST SPOKESPERSON FOR REVENUE & TRADE
New Zealand First has a vision for SMEs in New Zealand. Perhaps the most important part of that vision is actually acknowledging their existence. Whilst this government does all they can to increase big business activity, little effort is made to support and grow our kiwi businesses and grow the capacity of their owners. In fact, quite the opposite seems to be happening, with the likes of big infrastructure contracts being given out to overseas operators who are being made subcontractors and suffering through poor management.(sic)
The focus would change under New Zealand First from a big multinational facilitator to a kiwi-owned business focus. Initially this must start with growing our regions coupled with a specific focus on lowering the cost of doing business. I often wonder why there is not a greater outcry from our small business owners in this area, National has become more nanny state than at any time in our country’s history.
“Our kiwi-owned business focus must start with growing our regions coupled with a specific focus on lowering the cost of doing business.”
Our economic development package is out soon and will include tax incentives, including likely cuts for small kiwi owned business, accelerated capital depreciation terms and export incentives, and packages that include new-staff programmes which will offer monetary incentives to the business owner directly with more on offer if the business is willing to take on the training of staff. It is important to us and important you know what are up to.
Te Ururoa Flavell
MĀORI PARTY CO-LEADER & MINISTER FOR MĀORI DEVELOPMENT
Small businesses are the beating heart of the New Zealand economy. Over 97 per cent of firms in this country employ 20 or fewer workers. It is the backbone of the economy and Māori have a big part to play. We need to provide the right conditions to allow our small businesses to prosper so they can continue to grow our economy and support our people.
We welcomed last year’s tax changes in the Budget to make things easier for small businesses. Tax is an obligation, but it should never be burden. The tax changes that came into effect in April will help, and IRD’s overhaul of its computer system will also make things less onerous for business owners. But in the end, the tax system is not what makes or breaks a business, it comes down to the business owners. Their ideas, their drive, their passion, their belief in making a go of it. Innovation plays a big role, especially in the Māori economy, which is thriving. A recent report estimated the value of the Māori economy at $50 billion. It is tipped to grow at a faster rate than the country’s economy as a whole – more than double, in fact. By 2030 the value of Māori assets is projected to be $100 billion.
While our people and enterprises hold significant assets in our primary industries – mainly in farming, forestry and fisheries – it would be foolish to just focus on our large enterprises. We need to pay special attention to our small businesses. That is where the Māori entrepreneurial spirit is at its strongest. There are around 8,500 Māori-owned small and medium sized enterprises and most have an annual turnover of under $1 million.
One of the goals of the recently refreshed He kai kei aku ringa, the Crown-Māori Economic Growth Partnership and national Māori economic development strategy, is to lift the number of Māori SMEs by 30 per cent over the next five years. To do that we need to ensure Māori entrepreneurs and innovators get the support they need to carve out their niche in business. A part of that is a tax system that encourages people into business, but more importantly we need to provide them with the tools to succeed and help them navigate the myriad of services available to them so they can thrive and grow. Small business owners are employers of their whānau and others in their community and by providing those tools to business owners it can benefit the country as a whole.
“The Māori economy is tipped to grow at a faster rate than the country’s economy as a whole – more than double,”
ACT PARTY LEADER
ACT’s fundamental belief is that the government should spend less of your money. You should keep more of it. That goes for both personal income tax that you pay on your salary, and the tax that business owners pay in company tax.
The Government’s accounts are in surplus – the tax taken from New Zealanders exceeds the amount Government is spending. At the same time, taxpayers bear the cost of a large amount of wasteful spending. There are numerous grants and subsidies out there to support businesses and projects that New Zealanders would never voluntarily invest in – golf contests, yacht races, research into the Southland accent and subsidies to some of our biggest companies. ACT would make savings by cutting corporate welfare, and would use this money to deliver a company tax cut. We would return government surpluses to New Zealanders by delivering a tax cut in every income tax bracket, and ensuring no-one pays more than a 25% tax rate.
ACT would cut the company tax rate from 28% to 25%, with a long-term plan to cut it even further. Businesses around the country tell us that, rather than the National Party’s plans and strategies, grants and subsidises, the simplest thing that the Government could do to support business growth is a reduction in business taxes. We know that reducing the tax burden on all companies will enable them to grow, take on new staff and pay higher wages. Our cut to the company tax rate is estimated to reduce government revenue initially by $1.1 billion per year. We will balance this by reducing spending on corporate welfare – grants and subsidies to businesses. We believe that business growth overall will be better served by reducing the tax burden on all companies, rather than picking winners with taxpayer money. Greater after-tax returns will incentivise greater investment in new businesses and growth of existing businesses. ACT would also tie personal tax bracket thresholds to inflation, ending the ‘bracket creep’ that sees New Zealanders taxed at higher and higher rates even when they are no wealthier.
“The simplest thing that the Government could do to support business growth is a reduction in business taxes.”
It has been great to see the political parties currently in the House providing some comments on their taxation policies for small to medium enterprises (SMEs).
The consensus appears to be against massive changes to our taxation system, but instead continuous improvement. We would hope that this is because it is functioning properly, but some might argue that there are big issues with our system that politicians are too afraid to address. We certainly believe our system is working well, although there are challenges in the taxation of multinationals that New Zealand shares with other members of the OECD.
Only a couple of parties had policies that specifically addressed SMEs, although the general consensus was that an efficient tax system should benefit SMEs, as they will spend less time on compliance and more time on their business. In the same vein, we argue that the current broad based, low rate system results in most people and entities being taxed on an equitable basis and doesn’t result in absurdities. We thankfully remain semi-immune from overseas nuances such as a court having to decide what constitutes a biscuit (as in the United Kingdom), or business spending hours trawling through an 87 page document to determine if their smashed avocado on toast is subject to GST (as in Australia).
Inland Revenue’s Business Transformation programme appears to be supported by all sides of the spectrum, and while there are efficiencies to be gained, the word on the grapevine is that Inland Revenue have been experiencing troubles with implementation. As Inland Revenue develops systems that will enable it to track more and more information, we have a sneaking suspicion that it is only a matter of time before any efficiency gains that taxpayers will obtain under the new system will be swallowed up by the time taken to gather and provide IRD with further information, and respond to questions about any discrepancies between information sources. From a fairness point of view, new systems may make it easier for Inland Revenue to take long-promised action against the cash economy.
The Treasury’s Pre-election Economic and Fiscal Update (PREFU), which came out after the MPs made their submissions, but before publication of this magazine, has resulted in statements being made that appear to reduce the differences between the government and the opposition in the area of tax. The opposition, for instance, looks like they have ruled out increases in income tax or changes to GST, while awaiting a tax working group report before implementing other tax changes. There are therefore few tax changes that could remain, apart from a capital gains tax, which is still the big unknown and is seen as a cure for rampant house price increases. A capital gains tax has not been a cure for high house prices in places such as Australia and the United Kingdom. More likely, house prices have increased because of an undersupply of houses in the right place and an oversupply of (relatively) cheap money.
Unfortunately, a capital gains tax will not help SMEs, as their owners will be taxed when they sell their business, leading to an even greater shortage of capital in the New Zealand investment market.
No matter which block comes into power, it looks like Tax Freedom Day, which was 8 May this year, should stay around the same date. Tax Freedom Day is the day that New Zealanders collectively paid off their tax bill for the year and could keep the rest of their income for themselves, see the Winter 2017 edition of NUMBERS for more details.
Largely, the proposed changes on all sides are a small measure of good news for SMEs and we thank the parties for their contribution to this issue of NUMBERS.
Politics is moving fast, so it is fair to note that these responses were received in the week ended 13 August.