Business tax cut: the golden goose tarnishes

“Post-budget, it’s becoming clearer that for some businesses, the tax cut in last week’s budget will be effectively wiped off the books, or at least substantially offset by the cost of KiwiSaver,” say Ernst & Young budget spokespeople Jo Doolan and Aaron Quintal.Ernst & Young is recommending businesses take steps to calculate the impact of employer contributions, and have their calculations checked, before entering wage negotiations.

Ernst & Young’s modelling of the proposals suggests some businesses may be in for a sharp surprise.

“The Government’s prediction is that tax credits will account for half the cost of an average firm’s wage bill, but talking about averages is false security,” says Doolan.

As a rule, the KiwiSaver employer tax credit will only fully fund the employer contribution if staff are paid no more than:

From 2008 1% employer contribution $104,000
From 2009 2% employer contribution $52,000
From 2010 3% employer contribution $34,667
From 2011 4% employer contribution $26,000

“Those who pay their employees more than a basic wage will end up bearing a substantial cost. An open book policy on figures – agreed in advance by both parties to wage negotiations – is going to be crucial.

“Business be warned. When compulsory super was introduced in Australia it was a result of an agreement with the Unions that this was instead of a round of wage increases. In New Zealand, the Government appears to be saying that this sort of compromise would be a good idea, but each business must negotiate.

“The great hope of the budget – that business would use the tax saving to invest in measures to increase productivity – is dimming by the day.

“Instead the hoax is giving a tax cut to business on one hand and telling them on the other that they have to pay into employee savings accounts.”

National votes against KiwiSaver

National today voted against the Budget legislation, underlining its opposition to the very initiatives that will help to build a stronger economy and a fairer society, Finance Minister Michael Cullen said today.”Last week it voted against the company tax rate cut, the employee tax credit for KiwiSaver, and a lower tax rate on savings vehicles. And it voted against sending legislation to a select committee to introduce a tax credit for research and development and lifting the cap on donations to charities.

“By voting against the Budget today National is voting against:

  • Enhancing KiwiSaver to help more people save
  • Business tax changes to improve productivity and competitiveness
  • Electrification of Auckland rail
  • Roading improvements
  • Expanding industry training
  • Improving health services
  • Reducing class sizes
  • Extra police

“It is not surprising National voted a cut in the company tax rate � that’s consistent as National never voted for the last cut to the company rate in 1988, also by a Labour government.

“It is also not surprising National voted against KiwiSaver. National MPs secretly think KiwiSaver is good, but can’t make up their minds.

“It should read the signs. The business community is coming strongly behind KiwiSaver. Just today Air New Zealand announced it is going to contribute 4% right from the beginning of KiwiSaver on 1 July.

“Now we know what National is against, what are they for? Borrowing to finance personal tax cuts. They would rather spend our way to prosperity and send the bill to our children. That really is voodoo economics.”

Key wrong on KiwiSaver

Finance Minister Michael Cullen said Opposition leader John Key has deliberately exaggerated the net cost to employers of KiwiSaver.”In Parliament today he did a back-of-the-envelope calculation offsetting the benefit of the business tax package that is simply incorrect,” said Cullen.

“He has ignored the employer tax credit and used the wrong basis for his claims – 2 million workers, when there are 1.346 million equivalent full time workers. He has also failed to take into account the fact that employers will be able to offset their compulsory contributions against wage/salary negotiations.

“The net annual cost of the employer contribution after full implementation is $1.346 billion (cost of the employer contribution) minus $674 million (the credit offsetting the employer contribution) which equals $672 million.

“If there is a 0.5% moderation in total wage growth over the next four years in total, it would reduce the net cost to just over $300 million.

“What he has done is he has exaggerated the cost of KiwiSaver and ignored the change in incentives towards saving and investing that will bring wider advantages to the New Zealand economy as outlined by NZX.

“NZX CEO Mark Weldon said ‘the matching tax credits for employer contributions will give businesses a competitive edge in attracting and retaining high value employees.

‘There’s no doubt we’re swimming in a global talent pool. Now employers will be able to contribute to their employees’ savings in a low-cost, tax-efficient way, adding a degree of flexibility to structuring pay packages that will help them attract and keep the best people.'”

“What Key did in the House today was ripping up his speech as he went along because that is exactly what it was, rubbish.”