Liam Dann: The Bill and John magic show

Finance Minister Bill English. Photo / Greg Bowker

Govt takes more from business than it gives - and gets patted on the back

Business leaders are cheering a Budget that cuts the corporate tax rate to 28 per cent, but in the background the financial officers and accountants at many firms may be feeling more than a little nervous about the changes Finance Minister Bill English announced yesterday.

By the Government's own estimates the new tax regime for business is likely to bring a significant net gain to the Crown.

Throwing commercial buildings into the mix for rule changes on depreciation, the removal of accelerated depreciation on business equipment, the tighter tax rules for highly leveraged local subsidiaries of foreign corporates and the extra GST business will pay all add up to a big windfall for the Government - perhaps as much as $1.6 billion by 2013/14.

That figure is based on projections offered up by the Treasury yesterday and can't account for some huge variables such as the stimulatory effect of tax cuts.

But nevertheless it looks as if Bill and John have pulled off a shrewd political sleight of hand - taking more from business than they are giving and all but getting patted on the back for it.

It's politically smart because, while the drop in the corporate tax rate generates a mighty collective cheer, there is not likely to be any corresponding collective howl of outrage to balance the ledger.

The grumbles and complaints will come over time from a disparate bunch of businesses all paying different amounts for different reasons.

The first and most vociferous complaints come from the commercial property sector - but those have been anticipated for some time.

Foreign companies taking advantage of the "thin cap" tax breaks won't be thrilled either - but they are unlikely to find many champions among the local pantheon of business associations and industry bodies.

From that quarter the overwhelming optimism about the costs associated with the tax changes suggests there may be a rather large disconnect in expectations looming.

But for now it looks as if English and John Key are collecting plaudits all round. They have carefully under-promised and over-delivered. It is not a radical Budget but it is a step bolder than many had expected.

KEY TERMS

Thin capitalisation
The extent to which foreign-owned New Zealand businesses can claim tax deductions on interest payments.

Depreciation loading
Where businesses claim a higher (or accelerated) rate of depreciation - loss of value - on new assets compared with used or second-hand equipment.

Building depreciation
Tax deductions for the decline in value of a building.

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