Slash company taxes, pleads Business NZ

Company tax rates should be slashed to 20 per cent over time, and 30 per cent immediately, with big personal tax rate cuts too, Business New Zealand says.

But unions are at loggerheads with Business New Zealand over just who will get the benefit of any tax cuts and if they would also mean higher interest rates.

Business New Zealand's tax perspectives report this week suggested the top personal tax rate could also go down to 25 per cent for income above $47,300 over time. The ordinary tax rate would be 15 per cent under that figure by 2010.

The report shows lower taxes would be achievable by holding back government spending to 30 per cent of gross domestic product within five years.

Council of Trade Unions president Ross Wilson said employers would try to pocket whatever small increases most workers got from tax cuts, by offsetting them against future wage rises.

After the last government tax cuts, employers resisted wage rises in the 1990s. In the late 1980s the top personal tax rate was cut from 45 per cent to 33 per cent and the company rate fell from 48 per cent to 28 per cent, later moving to 33 per cent.

"When workers next seek a pay rise, the boss will deduct the value of their tax cut from any wage offer," Mr Wilson said.

But Business New Zealand chief executive Phil O'Reilly said businesses would not be able to offset tax cuts against wages rises at a time of low unemployment, with an intense skills shortage. "In that kind of environment, I just can't see that happening."

Businesses would have to pay market wage rates.

"I don't think pay rates fall because of a tax cut."

The CTU says tax cuts would also mean cuts in the number of nurses, teachers and doctors. Mr Wilson said the higher spending from tax cuts would also be inflationary, which would see workers pay higher interest rates on their mortgages.

Mr O'Reilly said the report suggested containing government spending, but not nominal cuts in spending, and so would not be inflationary.

Lower company and personal taxes would be good for the economy.

"Tax cuts for business are much more likely to be reinvested."

Business would reinvest to become more competitive.

"Last time, (there were tax cuts) that is exactly what happened."

But the business group has not done any estimates on what lower tax rates might do for growth, as a result of potentially greater business reinvestment.

Tax cuts for lower paid people would tend to be spent, while wealthier people would tend to save some of the extra cash. A boost from tax cuts would help in some sectors, such as manufacturing which had stagnated in some areas.

- nzpa