National turned up at the Business New Zealand pre-election conference yesterday in Wellington bearing gifts.
Finance Minister Nicola Willis was all but promising more tax relief as part of National’s campaign.
She said she would have announcements to make on the Research and Development Tax Credit and on income tax rates and/or thresholds after the Pre-Election Economic and Fiscal Update on September 29.
However, the coalition is not in agreement.
ACT Leader David Seymour told POLITIK last night that his party was not in favour of cuts at present.
“I don’t think we can cut tax again while in deficit, and I suspect the way the bond markets are heading it won’t be difficult to persuade people,” he said.
And New Zealand First deputy leader, Shane Jones, was equivocal about whether his party would support any cuts.
That may sink National’s chances of credibly focussing its election campaign on more tax cuts.
Business New Zealand has produced a 48-page list of election priorities which includes a range of proposed tax cuts.
The document says: “New Zealand’s Research and Development Tax Incentive (RDTI ) at 15 percent remains internationally uncompetitive.
“This is making the country a less attractive location for R&D and the downstream activities that follow it, including manufacturing, sales, and corporate management.
“Increasing the rate to at least 25% would bring New Zealand closer to economies such as Australia, Singapore and Ireland, where effective rates are far higher.”
But a report for the Ministry of Business, Innovation and Employment last year by the Motu economic consultancy shows that the R and D tax credit “cost” Inland Revenue $238 million in 2024 in foregone tax revenue.
Nearly doubling that would leave a $400 million-plus hole in the Government’s finances.
Willis was clearly keen to tell the conference the good news.
“I’ve got a newsworthy thing to say, which is when it comes to the tax system, I’ve been very impressed by the Business New Zealand manifesto, which clearly says the RDTI tax credit is a success. It’s something businesses value; it’s getting them investing in more research, development, innovation and science, and so we will wait until after the pre-election fiscal update to make a specific announcement, but that’s the next cab off the rank for me,” she said.
Pressed by MC, Ryan Bridge to confirm she was proposing to increase the tax credit, she said: “I think increasing the research tax credit makes sense; that’s how we build the productive economy we want to see. As I said, I’m giving you a teaser, and I’m going to announce the details after the pre-election fiscal update.”
But there was more.
Business New Zealand also said fiscal drag was pushing workers into higher tax bands without any deliberate policy choice.
They proposed that the Government index thresholds to the Consumer Price Index or wage growth to prevent bracket creep.
Again, Willis had good news.
“We have a track record on this,” she said.
“We were the first Government in 14 years to address fiscal drag and adjust tax brackets following the effects of inflation.
“If elected again, our position is that if we can keep to our budget responsibility rules, which is essential that we return the books to balance and are getting the debt curve bending down, then the priority should always be adjusting tax settings so that working people on average wages aren’t being slapped with bigger and larger effective taxes every year.
“So again, after the post-election update, we will have more to say on that.”
Willis made her promises while she was on a panel at the conference sitting alongside her two coalition partners, Seymour and New Zealand First Deputy Leader, Shane Jones.
They gave her what at best would be described as a lukewarm reception.
“Look, be very careful, given the challenges that we’ve already got as to how much revenue you take out of the revenue line,” said Jones.
He told POLITIK that New Zealand First would sooner look at lowering the corporate tax rate for small New Zealand businesses, but that would depend on what was in the PREFU and that there was a realistic track to reduce the debt.
Seymour would later focus his leader’s address to the conference on New Zealand’s Government debt situation.
“Before we can talk about tax, we must talk about debt,” he said.
“Tax is the bill that Government sends you today, but debt is the bill that it sends to those currently learning their times tables, which they will need in order to work out how to repay this debt.
“I believe the real challenge facing New Zealand is how we balance the books fast and sustain it without giving in to temptation that is always the opportunity for a new tax.”
Answering Willis directly, Seymour said the priority after getting on top of debt should be to flatten the tax structure.
“ I hope there will be more discussion about tax and being broad-based and low rate because it seems that there’s an erosion of that commitment,” he said.
“When you move the brackets, you erode the base, and you don’t face up to the real problem that we have an extremely progressive income tax system.
“We’re paying almost four times the rate at the top that you are at the bottom, and you don’t go into those higher rates just because of inflation.
“It’s because you invest, it’s because you do night school, it is because you take on some overtime, it’s because you work harder.
“If we want to solve this problem, then we can either move the bracket slightly. Or start using any extra revenue we have to flatten the rates, which would be far preferable for simplicity, for incentives, and for administration. “
Business New Zealand surveyed its members on a number of key economic issues. They got 423 responses, with over a quarter from big businesses with more than 500 employees.
To reduce debt, 4.3 per cent favoured increasing taxes; 39.1 per cent favoured doing so primarily through spending reductions, while 54.3 per cent favoured a combination of both.
There wasn’t much enthusiasm for tax cuts. A majority favoured no change for either personal or corporate tax rates.
As if that might not have been frustrating enough for National, there was worse news on a Capital Gains Tax.
The business people were split in half.
Forty-six per cent favoured a reconsideration of a Capital Gains Tax while 45.7 per cent opposed it.
Again, that will be awkward for National, which, as Willis demonstrated yesterday, is resting a substantial part of its campaign against Labour on opposition to that party’s Capital Gains Tax. (CGT)
Willis persists in claiming that the CGT will impact a small business because when they go to sell up, they will have to pay the tax.
She said a dairy owner who wanted to sell would need their tax accountant to determine how much of the value of that business is reflected in the stock and the goodwill and the brand and how much it was simply the commercial property; the actual shop and the land that it sits on.
“These are difficult issues for tax accountants to work through, and either way, he’s getting hit with a capital gains tax, having worked his whole life,” she claimed.
But Willis’s Labour counterpart, Barbara Edmonds, is a tax lawyer who has worked for Inland Revenue.
Asked by Bridge whether the dairy was going to be affected by the CGT, Edmonds returned to her IRD mode.
“So, no to business, because under the definition of the Income Tax Act, if you sell your business, you will not be affected,” she said.
“However, if it’s a commercial property, which we made clear in October, it doesn’t matter how the entity holds it, whether it’s an entity or an individual; then that portion will be subject to any gains from 1 July 2027.”
But Luxon has rested National’s election campaign on “no new taxes.”
However, he too was ready to hint at increasing the Research and Development Tax Incentive.
“I’d say to you watch this, we certainly are, and I hope to be able to say more about it after Treasury opens the books and releases its PREFU,” he said.
Labour leader Chris Hipkins, in a surprisingly low-key speech, reaffirmed the party’s commitment to a Capital Gains Tax but stressed that it would apply only to investment in residential property, excluding the family home, and commercial property.
“Nine out of 10 New Zealanders won’t pay that,” he said.
Otherwise, he said Labour wanted to increase the GST registration threshold for the first time since 2009. And wanted to increase the asset write-off threshold from $1,000 to $10,000.
“We know that will make such a difference to small businesses who are expanding their capacity,” he said.
But though many attendees at the conference thought his presentation underwhelming, he might have ended the day satisfied that the coalition has exposed a fracture inside its own ranks which may well blunt any campaign promises of more tax cuts from National.
