Company Tax Rates, Alliance Style

ACT has thrown company tax rates into the election circus. The reaction from other parties has been muted to say the least. No one seems to know how to respond.

The Alliance Party has never been afraid of controversy. Let’s look at company tax rates, and trust tax rates too for that matter. But let’s look at them from the viewpoint of reducing inequality and increasing the common good, as opposed to enabling companies to increase their profits per se.

ACT wants to cut the company tax rate from 28% to 12.5% by 2020. That would increase company profits. However, increasing profits that would go to only a handful of directors and shareholders who may or may not even live in New Zealand simply takes money off the rest of us and gives it to the already wealthy. It increases inequality and works against the common good. Let’s not do that.

But we shouldn’t be too hasty. ACT may be right. The tax rate for businesses making only very small profits may need to be lower. We argue, though, that to reduce inequality the tax rate for businesses making massive profits needs to be much higher.

Perhaps the time has come to have a discussion on the merits of adopting a progressive tax scale for companies and trusts as well as individual incomes. This would have many advantages. It would stop people moving income between the three to avoid taxes. A progressive tax scale would favour small businesses and start-ups, which comprise most of New Zealand businesses. It may even be welcomed by CEOs of big companies, because it would relieve them of the pressure to deliver ever increasing profits.

A progressive company and trust tax scale should certainly act as a disincentive for asset stripping, redundancies, and lowering wages for workers – the quick fix solutions for career CEOs looking for short term profits to boost their reputation and help them up the corporate hierarchy. To avoid paying more tax, businesses may even hire more people and increase workers’ wages. And it would be good for the environment. Ever increasing profits are ultimately unsustainable.