Budget 2010: Business reacts

Reaction from the world of business and economics to today's Budget:

File photo / Bay of Plenty Times
File photo / Bay of Plenty Times

Alasdair Thompson, chief executive of the Employers & Manufacturers Association said the cuts in personal and income tax rates, along with the GST hike made this the fairest Budget in over a decade.

"Business will welcome the tax rebalancing being put in place in the Budget as it will be much fairer,".

"Getting the company tax rate down to 28 cents next year will be two years ahead of Australia and help restore competitiveness lost by the ETS on July 1st this year.

"The ability of high income earners to shield income in lower tax paying trusts, and the removal of depreciation on buildings, will fall heavily on higher income earners.

"But this is balanced against their income tax reductions and the lower company tax rate."

Infometrics managing director Gareth Kiernan said the effectiveness of the government's changes will be "severely undermined" by the disincentives to take on additional work caused by Working for Families.

"While Working for Families may have noble goals, it is a poorly designed system."

"Working for Families was supposed to reward people for being in paid employment. High effective marginal tax rates have precisely the opposite effect. The government may have lowered income tax rates today, but National has failed to address the more significant issues caused by the previous Labour government's bloated middle- welfare package for the middle class."

Deloitte tax partner Allan Bullot said businesses need to start preparing for the introduction of the new GST rate as soon as possible.

"The increase should have surprised no one," he said.
"But many businesses, particularly small to medium-sized ones, weren't around when GST was last increased in 1989 and possibly haven't considered all the practical implications of an increase.

"They need to be aware there is a lot of work to do in between now and October 1 - just over four months may seem a long time away but in reality it'll fly by pretty quickly."

"The most immediate concern for the majority of SMEs, particularly those selling goods and services directly to consumers, will how much to increase prices.

"If a product retails for $9.95 now, then to maintain the same profit under the new GST rate, it would need to be sold for $10.17, which really isn't practical for retailers," Bullot said.

If they don't increase prices at all, they'll lose more than 2 per cent, he said.

Ratings agency Standard & Poor's said that its view on New Zealand's sovereign creditworthiness was not immediately affected by today's budget.

Standard & Poor's has New Zealand on an AA plus long-term rating.

New Zealand had sound public finances, a sound financial sector, resilient economy, and open and transparent policy environment, the credit rating company said.

These strengths offset the country's high level of private sector external indebtedness at a time of continuing elevated stresses in the global financial system.

"Although the deficit in 2011 is large, we note that the outlook has improved since the last budget and there remains an achievable and believable path to return the operating position to surplus," Standard & Poor's credit analyst Kyran Curry said.

But New Zealand's current account deficits and high external debt made the economy vulnerable to a change in international investor sentiment or adverse exchange-rate movements.

Business Roundtable executive director Roger Kerr said the Budget delivered "sound steps but no step changes and rates about a 6.5 out of 10."

"There is not much we would be critical of," he said. "The budget reveals sound steps but not step changes."

The Government had taken up only about one of 40 recommendations by the 2025 Taskforce headed by Don Brash.

Today's budget was a sensible package, but there were no privatisation plans and no plans to privatise ACC, he said.

The Roundtable accepted changes to depreciation in the budget and welcomed the lowering of the company tax rate.

"The Government has not really announced any significant issues in a number of areas like regulatory reform. The programme seems to be languishing there."

Auckland Chamber of Commerce chief executive Michael Barnett said changes to the tax treatment of investment property would invite a behaviour change by New Zealanders away from investing in property to investing more in New Zealand and productive activity.

"If we achieve just that from this Budget it will represent a game change we have needed for decades."

KMPG says the GST hike has been rushed with only four months until implementation.
Businesses would need to quickly think through the implications and implement the necessary changes.

ANZ economist Mark Smith said the fiscal forecasts revealed in today's Budget would "be the envy of most Finance Ministers".

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