This year's Mood of the Boardroom survey highlights how business leaders are not really open to the Government doing much more on tax, outside of reducing tax burdens, particularly the corporate tax rate.
This isn't really a new sentiment, or limited to business leaders, as outside of sabre rattling, the mainstream tax policies of successive Governments have predominantly just oscillated on our highest individual tax rate, and whether it should be 33 per cent or 39 per cent.
And on that point, survey respondents remain resolute, the 39 per cent rate continues to be unpopular, largely symbolic, and unduly taxing a small subset of the population who earn high levels of personal income that is not able to be sheltered through other vehicles; not those with real wealth.
Most respondents (64 per cent versus 30 per cent) believe that the 39 per cent rate remains unwarranted given what it raises, the expected return to surplus around 2025/2026 and who it impacts. And an even greater level (76 per cent versus 18 per cent) believe that the 39 per cent rate raises equity issues with other tax rates, with a similar level (68 per cent versus 6 per cent) believing that the 39 per cent rate further skews (in a net negative way) the taxation of labour over capital.
While in some respects these results are not surprising, given that respondents are likely to be over-represented in the subset that are most impacted by the 39 per cent rate, the truism of NZ tax policy is how quickly sentiment moves from accepting a liability to pay at 33 per cent to begrudging that payment 6 per cent higher at 39 per cent.
A sentiment exacerbated when other rates are lower, other forms of economic income are not taxed at all, and those impacted believe that they are carrying a relatively higher tax burden than they should be having in regard to their overall context.
An even higher uniformity of sentiment (91 per cent versus 5 per cent) has no interest in the Government looking to raise additional revenue from either an expansion of the tax base or an increase in the current rates; with the overarching desire being that tax revenue growth is achieved through growing the economy; albeit that there was support for targeted tax measures that brought certain areas into the tax net that were seen to inequitably fall outside of it, and to better direct social and wider support to those in need (to mitigate the need to tax more).
International competitiveness concerns continued to come through, and were heightened.
Though respondents were not overly drawn to general tax reductions, they were overwhelmingly (67 per cent versus 17 per cent) attracted to the Government looking to introduce a phased reduction in the corporate tax rate to 25 per cent by 2027 to match Australia; with the corporate tax rate taking centre stage of concern (64 per cent to 27 per cent) in terms of global competitiveness, given our 28 per cent rate is the 7th highest of the 38 OECD rates. Consistent with this, respondents (65 cent to 31 per cent) are more concerned now about the Government's ability to compete for mobile capital and labour than they were pre-pandemic, with only 4 per cent having a reduced level of concern.
Reinforcing the point, most respondents were not concerned that the Government would capitalise on global sentiment to increase tax levels, and in particular President Joe Biden's tax agenda, given our tax settings are seen as already materially ahead of the pack.
Of course, tax and tax rates pair off with spending and the overall fiscal context that exists.
Positively for the Government, the majority of respondents (56 per cent) are comfortable with the Government's fiscal policy, its priority to return to surplus balanced with reducing net core Crown debt, fewer (34 per cent) thought the Government's plans were too lax, and fewer still (10 per cent) thought they were too severe.
Framing this sentiment, the vast majority of respondents (63 per cent versus 20 per cent) were concerned with how the Covid Response and Recovery Fund was being used wider than was initially understood; which also tied into the majority sentiment (64 per cent versus 34 per cent) concerned around the increasing efficacy of Government spending as the economy and delivery agencies were seen to be severely challenged by capacity constraints; in part, reinforced by the establishment in Budget 2021 of a new "Implementation Unit" within the Department of Prime Minister and Cabinet to be chaired by the Minister of Finance, to ensure the Government delivers on its major policy initiatives.
Capping off the tax sentiments was a growing level of concern (60 per cent versus 39 per cent around wealth inequality, centred on housing affordability. In terms of dealing with that concern, and in addition to looking to address housing in particular, the majority sentiment (56 per cent versus 16 per cent) thought the Government's role was to ensure a heightened safety net through minimum levels of welfare and income, versus taxing wealth and assets; and in terms of the latter, 39 per cent were generally unattracted to wealth tax settings with a further 38 per cent augmenting that negative sentiment with a view that any such matters would be largely symbolic and would not really address wealth inequality.
Is any of this surprising?
Probably not and possibly influenced by lockdown fatigue, but it does suggest that the Government could easily lose the dressing room with businesses if it looks to raise more revenue through increased tax setting when the economy seems to be generating enough, and the capacity to spend wisely is being challenged; that it may be better to leave well enough alone on wholesale tax settings, other than the sacrificial 39 per cent rate — to let the sleeping dogs lie, as they say.
• Thomas Pippos is Chair of Deloitte.