Inequality under the microscope

Thomas Pippos, Deloitte NZ chief executive. Photo / Greg Bowker

By Thomas Pippos

Businesses leaders feel it has never been more important for our politicians to communicate the direction of social policies - equality, fairness, and cohesionIn some legal contexts, corporations have the same rights and responsibilities as individuals. And like some individuals, businesses are thought by many to operate from extreme self-interest - myopically focused on returning short term value to shareholders at all costs.

The results of the tax questions in the 2017 Mood of the Boardroom Survey highlight that this is not the case.

Though corporate social responsibility has been around since at least the middle of last century, the themes of fairness and social cohesion seem to have taken on heightened importance from all quarters of late.

More recently, the social cohesion theme was prevalent in the Government's May Budget, which included a material increase in funding through the Tax and Families Package for measures broadly aimed at building greater resilience for middle and lower-income New Zealanders.

We coined the sentiment that the budget looked to deliver "material cash and services dividends to the masses with equally materially social cohesion and economic resilience dividends to business and those further up the food chain".

The importance of the latter part of this sentiment continued in findings from last month's Deloitte BusinessNZ Election Survey, which reflected a greater awareness from the wider business community of the importance of social cohesion.

And consistent with this, the Mood of the Boardroom results confirmed that the largest New Zealand businesses are also increasingly concerned with this issue.

For example, while businesses are in favour of reductions in personal income tax rates and the corporate tax rate (in particular the corporate rate in response to downward movement of the equivalent in Australia), two-thirds of respondents to the Mood of the Boardroom survey indicated they are happy to keep tax rates largely as they are and use future surpluses on a mix of debt reduction and the provision of greater social services.

This fairness and socio-economic wellbeing theme also came through in a number of this year's survey results including: a greater focus on enabling regional development, a desire for greater fairness across different types of business ventures and a heightened concern around the taxation of global multi-national corporations in New Zealand.

On regional development, almost three-quarters of respondents were open to the Government sharing certain tax revenue (such as GST or regional petrol taxes) with the regions in which the tax revenue is collected - those proceeds being directed toward economic development that benefits stakeholders in those regions.

The sense seems to be that it's only fair to empower regions to make decisions on the best investments for economic growth in their patch that benefit individuals in their constituency; noting however that with any such additional revenue there would need to also be greater responsibilities in terms of performance standards.

In regards to fairness across various business entities, respondents are decidedly in favour of keeping charities' tax-exempt status, slightly less so in relation to active business income (as compared to passive investment returns), but only as long as charities are meeting their legal obligations under the Charities Act.

Also, respondents were strong in their comments that tax exempt status be protected for bona fide charitable activity only, and not provide a way for businesses to hide behind charitable status to gain unfair competitive advantage.

This theme also extended to the tax treatment of Maori Authorities, with the largest group of respondents (just under half) in favour of government revisiting whether or not the 17.5 per cent tax rate continues to be appropriate.

And fairness is certainly top of mind with respondents' views on the taxation of multinational companies. Somewhat surprisingly, over 70 per cent do not think multi-nationals are paying their fair share of tax, either generally or specifically here in New Zealand.

The largest group of respondents (40 per cent) also do not believe progress has been made to change New Zealand's tax settings to deal with taxation issues associated with base erosion and profit shifting (BEPS), despite the Government having recently announced numerous measures in this area..

Though the majority of respondents are broadly supportive of the Government's approach to BEPS so far, when asked if they support Labour's suggestion of introducing a diverted profits tax (DPT) - as exists in Australia - over 49 per cent say yes. This even though a similar number are unsure and almost two-thirds don't know if a diverted profits tax would raise significant revenue here. Also somewhat surprisingly, more respondents are worried about multinationals paying their fair share than are worried about the so-called black economy - despite the black (cash) economy being widely accepted as a billion-dollar gap in the tax net. Interesting statistics from business leaders.

Perhaps all this is just another response to the global upheaval best illustrated by Brexit and Donald Trump's ascendancy, which has permeated the political debate in the lead up to our own election.

In general, perceptions of inequality are under the microscope more than ever and this extends to the thinking of our business leaders.

In many respects this type of sentiment on display in the Mood of the Boardroom survey is not a surprise.

The context today is one where business leaders feel it has never been more important for our politicians to communicate the direction of social policies - equality, fairness, and cohesion (that have become buzzwords) - in addition to economic out-turns - as they are inexorably linked in creating an environment where business can prosper.

The Herald's Mood of the Boardroom 2017 Election Survey attracted participation from 118 respondents. The results were debated this morning by shadow finance spokesman Grant Robertson and National's Finance Minister Steven Joyce.

- Thomas Pippos is chief executive of Deloitte New Zealand