Finance: System favours farmers

By Jeremy Tauri


Our tax system is set up to favour farmers over the rest of the country's small businesses.

Just look at the income equalisation deposit (IED) scheme. It's been around since 1965, when it was pointed out to Government a progressive tax system penalises those taxpayers who have a fluctuating income.

In a good year, farmers are able to deposit money into the scheme to reduce their taxable income. That money then earns interest at 3 per cent per year. Generally they leave it there for a minimum of a year, but in some cases it can be paid out sooner.

In the next bad year, when they withdraw the money, it becomes taxable income.

Don't get me wrong - I do think we should help farmers. But in the 50 years since the scheme was first proposed, New Zealand's business landscape has changed.

It's not just farmers, fishers and foresters who have fluctuating incomes anymore. Just ask any tourist operator.

But the system is still there, helping farmers.

And drought and the Psa virus now mean the IRD has given them an extra hand up.

If you're a beekeeper, dairy farmer, grain and seed grower, market gardener, fruit, tobacco, poultry or vegetable farmer or own a vineyard you now have until the end of April to make a deposit, which will be deductible in the 2012 financial year.

But what of the surrounding businesses that have also taken a hit because of the loss of wealth from farmers? You can't say the rest of Katikati, for example, has carried on unencumbered by the problems of Psa-hit kiwifruit growers.

The Government is open about how important small businesses are to New Zealand. Firms with fewer than 20 full-time employees make up 97 per cent of all businesses and the Ministry of Business, Innovation and Employment says they account for about 40 per cent of GDP.

Small and medium enterprises (SMEs) have had a hard time since the GFC, and with the increasing online trading trend and cheap and parallel imports.

Perhaps the SME isn't so different from the farmer.

If that is true we may need the IED to apply to all businesses - or perhaps we just need a better progressive tax system. The real question is who is going to push for these changes?

- Hamilton News

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