Cutting the corporate tax rate could boost the economy by billions of dollars a year, according to modelling done by consultancy Deloitte.
Lowering the corporate tax rate is one of a suite of policy and tax changes the Government is mulling ahead of the May 22 Budget, as it tries to inject life into the country’s idling economy.
The modelling suggests if the corporate tax rate was cut from 28% to 25% – the rate applied to small businesses in Australia – the economy could end up being $25 billion larger over the next decade.
Put another way, New Zealand’s gross domestic product (GDP), which was worth $420b in the year to September, would be $25b higher between 2025 and 2034 than would otherwise be the case (all else being equal).
An additional 10,815 full-time jobs are also estimated to be created over the decade.
If the tax rate was slashed to 20% – the average across the Asia Pacific – New Zealand’s GDP would be $67b greater over the next 10 years, with an additional 27,765 jobs expected to be created.
This is a no brainer. The average corporate tax rate in Europe is 19.9%, is 23.7% for the OECD and 23.5% globally. 28% is too high. However spending will need to be reduced to match the drop in revenue, so the deficit doesn’t increase.
Over time the increase in the economy and the tax base would compensate for the revenue reduction, but we can’t afford to grow the deficit in the interim, so spending reductions would be needed to make corporate tax cuts viable.
David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders.
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