10 Oct 2008

Government urged to make tax changes to help economy

4:18 pm on 10 October 2008

The Stock Exchange and the New Zealand Institute are urging the Government to make substantial tax changes to help the economy cope with the international financial crisis.

They say businesses should be given a two-year tax holiday before they are required to pay provisional tax for this financial year.

The draft strategy also recommends introducing 100% tax depreciation on capital investment for the next two years, and tax incentives to bring New Zealanders home and to attract new businesses here.

It also suggests a government-owned holding company be set up to finance investment and promote global growth, saying the Government should use its $25 billion worth of State-owned Enterprises to help ward off the worst effects of the international slowdown.

In the longer term the two organisations want KiwiSaver made compulsory and tax advantages for property speculators scrapped.

Bipartisan action

Stock Exchange chief executive Mark Weldon and his institute counterpart, David Skilling, say bipartisan action is needed to ensure New Zealand survives the current financial turmoil.

"The real challenge in New Zealand is not so much a financial one with our banking system, as is the case in the US and Europe," Dr Skilling says. "It's really about making sure that we continue to get high rates of investment in the real economy in New Zealand and make sure that we don't go into a deeper recession."

Earlier this week, Mr Weldon criticised both the National and Labour Parties for failing to respond properly to the world financial crisis.

He says neither major political party is properly focussed on how serious it is.

"It's not really probably in either parties best interests politically to talk too much about it. For Labour I think it opens them up to criticisms of how did we get there and for National clearly there hasn't been the greatest thinking around how to respond at this point."

Dr Skilling says the crisis one of the most serious events to confront the country in several decades and an urgent and deliberate response is required.

"I don't think that we have really grappled with the seriousness of the challenge that we face, so that's point one, and point two is I suppose to encourage as many people as possible be they politicians or folk in the private sector to put their perspectives and ideas into the mix."

He is urging politicians to consider the strategy and pick up some of its ideas, despite what he calls the complications of the election season.

Keep R and D credit

The pair is also urging the National Party to retain the tax credit for research and development in the short-term at least, to help buffer the economy.

Mr Weldon says a number of firms have made plans based on the 15% tax credit which came into effect from April.

He says if the credit is scrapped it should be phased out rather than removed immediately.

The New Zealand Institute is an economic think-tank funded by business interests.