Posts Tagged ‘BERL’
Hold your horses and your wallets. Cutting taxes = silver bullet. Don’t think so
Okay, lowering company taxes will be good for our economic growth prospects.
But BigCake thinks supporters of a company tax cut may be getting overly excited about how good. Same goes for personal taxes, but for the moment I’ll stick to company ones.
How much (and how) businesses pay tax affects investment and growth (Ireland till the last year or so would be a positive example). This post is not an argument against tax changes likely to be announced in next month’s Budget.
We just shouldn’t wet our pants over what they’ll achieve.
New Zealand already has a sh!t hot business tax system. In the World Bank’s Ease of Paying Taxes rankings, New Zealand comes in 9th in the world in “total tax burden” which measures, for small and medium-sized businesses:
• the number of payments
• time spent complying with tax laws
• the total tax rate – the different taxes and contributions (eg, labour, social and property taxes), payable after accounting for deductions and exemptions.
So as far as Kiwi exporters are concerned, they already have an advantage tax wise against domestic companies operating in our top markets.
Investors looking at New Zealand apparently like to focus on the actual headline company rate (30 percent), but it’s hard to believe they’re so unsophisticated they can’t look at the big picture.
Don’t forget also that we had a company tax rate of 48% in the early 1980s and went on the have what was regarded as one of the best tax systems in the world. Make much of a difference? Nah, not really.
Currently we may have a relatively high total tax rate (53rd in the world in the World Bank rankings), but this is massively offset by how easy it is to pay tax here (and that’s a cash benefit to business).
So for sure more could be squeezed out of our rate, but if you look at the World Bank’s figures we’re already pretty low by OECD standards at least.
Unless you’re sitting on a lake of oil, or set up as a tax haven, low tax rates are not necessarily an indicator of strong growth. Eg:
- Timor-Leste 0.2% (of profit)
- Vanuatu 8.4%
- Maldives 9.1%
- Namibia 9.6%
- Qatar 11.3%.
This puts some perspective on our 53rd position and total tax rate of 32.8%. More relevant would be our leading trading partners like:
• Australia 48% total tax rate
• China 63.8%
• UK 35.9%
• US 46.3%.
Basically BigCake thinks tax cuts are one of the lazy off-the-shelf theories that have a lot of appeal for those pursing them (for obvious reasons) but in the real world don’t make much difference, unless you do something spectacularly bad or good.
Neither of which are on the agenda.
But (repeating myself) sensible cuts can make some positive difference and as a result we should be trying to lower tax rates in ways that are fair to all New Zealanders and encourage growth.
But no silver bullet here I’m afraid.
Okay, smart arse you got any better ideas? BigCake is still figuring this out (hey, it’s just me Econ 101 guy, not a think tank), but he reckons it’s something to do with the way we look at the problem.
He spotted a presentation from BERL Chief Economist Ganseh Nana given to the Fabian’s Better Future project that nicely frames the way he (currently) thinks about the problem
Economic solutions shouldn’t be seen predominantly in terms of house prices, interest rates, ratings, inflation, debt and (not on Nana’s list) tax. What we should be focusing on is skills and knowledge, businesses, networks, innovation, technology, people etc and with less of an emphasis on the aforementioned.
Economists and policy wonks obviously don’t ignore innovation etc, but they tend to get fixated with tax and stuff in ways that mostly don’t seem to answer BigCake’s questions.
BTW high tax rates are a good indicator of a stuffed economy:
• Congo 322% (of profits)
• Gambia 292.4%
• Burundi 272.6%
• Sierra Leone 235.5%
• Central African Republic 203.8%.
Auckland Supercity – another oxymoron?
BigCake has friends and family in Auckland, so Aucklanders don’t take this personally…but pull your finger out.
Your country needs you, as the country’s largest city by far, to be an accelerator not a handbrake.
In most countries, the leading city you know…leads.
But not Auckland. As BERL Chief Economist Dr Ganesh Nana says, there are “few signs that the Auckland economy is leading the nation into recovery. On the contrary, the picture for Auckland seems to follow that of nation.”
Business as usual then for New Zealand’s property and consumer hub.
Throughout the world, leading cities are the motors of their country’s and region’s economic growth. Economically they’re more dynamic and productive than other secondary and third tier cities.
Sound like Auckland? Not much.
Here’s a grab bag of evidence of the Supercity’s under achievement:
• Wellington’s even got a better value add per worker than Auckland (NZIER work for Committee for Auckland)
• “International evidence highlights the importance of having at least one outward facing, global city to lead a nation’s economic development. Auckland doesn’t yet play this role to the extent that major cities do in other economies. (MED)
• Auckland export-to-gdp ratio is lower than other New Zealand regions (Auckland Regional Council)
• Auckland’s productivity is 15% below that of major Australian cities (AREDs)
• “…it has been suggested that most – if not all – of the gap in performance between New Zealand and Australia in recent years can be attributed to Auckland’s performance compared to that of Australia’s leading cities. (MED)
• Internationally leading cities have an economic performance about 25% higher than their share of the population. Auckland, however, is about on par with the rest of New Zealand. (From Computerworld mag, but not sure of original source of this one)
• The Blues (‘nuf said).
The last government had a wishfully named programme (Auckland – an internationally competitive city) to fix all this, but it looks like this has disappeared under the umbrella of the Supercity project.
Of course one of the aims of this project was to improve Auckland’s economic performance.
But a lot of interesting work that Labour had its officials doing on fixing Auckland appears to have now disappeared, as signified by its consignment to the netherworld of the MED’s website’s archives.
A transformed Auckland, the programme’s publicity said would “become the home of globally competitive firms supported by a first-class pool of skilled labour. Auckland will be seen as one of the best places in the world to live, do business, and visit”.
The programme identified the barriers to this:
• Top of the list – lack of effective leadership that could put together and deliver a vision and plan for the city
• Fixing infrastructure problems
• Attracting or growing more globally competitive businesses
To be fair, the Government is getting stuck in to fixing the first two of these.
But last word to Dr Nana. “…looking beyond the short term, with New Zealand’s export revenues increasingly concentrated in primary commodities and associated processing, the question of the role of the Supercity within such an economy needs to be urgently addressed.
“Auckland could continue as a property and consumer-oriented economy operating as a transport hub for New Zealand. Or, it could look to truly lead by providing that point of difference for NZ Inc to leverage. Such a transformation has proved elusive for some time, and there is little sign that we are any closer to finding that export and wealth-generating leader for the nation.”
So Auckland, where the bloody hell are you?