Budget earns pass mark, shows poor grasp of tax
OPINION: Budget 2017 did well in addressing a number of key Government priorities including maintaining surpluses, reducing debt and funding infrastructure and services.
But it missed the mark on tax. This year’s Budget did not cut tax across the board, nor did it meaningfully improve tax settings.
Every Budget offers a great opportunity to promote future economic growth by reducing taxes for everyone.
Unfortunately this opportunity was not completely grasped in Budget 2017.
The most important thing this Budget could have done was to cut business tax. Lower business tax encourages investment and increases productivity and jobs.
Low business tax is also important for international competitiveness. We need to have a lower rate of business tax than other countries, otherwise we will lose out on foreign investment.
Australia is moving to 25 per cent and the United States is moving towards 15 per cent, while New Zealand’s business tax rate remains a high 28 per cent.
The surplus of $1.5 billion that was available for Budget spending was significantly swelled by more than half a billion in recent business tax revenue, so a business tax cut should have been a big priority.
The Budget did make changes to personal tax by lifting the bottom two tax thresholds. As a result, many household incomes will be improved.
However, had all thresholds been lifted, it would have increased spending power for everyone and done much to stimulate the economy.
For the same reason tax rates should have been lowered across the board. Many small businesses that are taxed at personal tax rates would have benefited.
Tax concerns aside, the investment in infrastructure, innovation and trade in the 2017 Budget is very positive.
Key areas of the economy will benefit from $11b investment in transport infrastructure, particularly Kaikoura and greater Auckland. Improved roading infrastructure is critical for productive, profitable business.
Investment of $27 million in irrigation infrastructure and systems is timely, given New Zealand’s reliance on primary production for export.
And given tourism’s place as the country’s top export earner, it is helpful for $178m to be invested in tourism infrastructure.
Tax rates should have been lowered across the board.
Trade is critical for our economic wellbeing. The Budget’s apportionment of $35m to help exporters identify overseas market opportunities, work on reducing non-tariff barriers (especially important for primary sector exports), and work towards more trade agreements is well-placed.
These days business must innovate to survive. A forwardlooking feature of the Budget is the $75m for Callaghan Innovation’s work on growing business research and development.
In all, the spending on transport, tourism and irrigation infrastructure, help for exporters, and co-funding for greater research and development through Callaghan equates to sound investment in high-growth areas of the economy.
In a Budget that focused to a great extent on social spending, this choice of business investment is judicious. BusinessNZ would probably give Budget 2017 a pass mark of B+. Kirk Hope is the chief executive of BusinessNZ.