Kerre Woodham: Taxation is a finely balanced thing

We know times are tough. We know that we're in a period of rebuilding, we know that there are green shoots starting to come through. We're looking towards the end of 2025 as a time when things will turn around, when things will start to improve, and things will start to get better on a micro level in our own households, and on a macro level when it comes to the government.  

But there are still sticky times ahead, and Treasury officials have released a document warning the government that “significant reforms” or “reductions to public services” will be needed in the not-too-distant future if it sticks to its current, restricted spending track. The document on forecast sets out the difficulty the Government will have in keeping to its restrictive level of spending so it can post a surplus and rebuild the Crown balance sheet (this is what a lot of National governments have to do), while also maintaining public services at existing levels.  

In a column in the Herald, the writer says it paves the way for a 2026 election campaign which is likely to involve a battle on the issue of taxation and the role higher levels of tax might play in rebuilding the balance sheet without cutting the services. Of course we can become a richer nation, but that will take time. There are only a few ways the government can generate income, and it's mainly by taxing us. It can help businesses become more prosperous, more productive, and then it can clip the ticket on the way through but really, it's pretty limited in how it raises money. 

So each party has a very different idea on what a fair taxation system would look like. But right now, the party that actually does have the ability to do something about tax and using it as a way of attracting foreign investment into the country is looking at lowering corporate tax rates and that, of course, would be National as the senior partner in the coalition government. Finance Minister Nicola Willis was talking with Ryan Bridge on Drive last night and she said she was looking at the settings of our company tax rate and the regulations that underpin it.  

NW: Well, if you compare New Zealand with the rest of the world, we're not as competitive as we used to be. Which is to say that our corporate tax level is reasonably high when you compare it to the rest of the developed world.  

NW: So looking at that, our government says okay well, what could we do to make sure the tax settings in New Zealand are supportive of businesses wanting to invest and grow. Realising that on the other side of that, you have to pay for it. Because if we're taking in less tax then we have to find other ways of getting that money so we can invest in the things that really matter —our public services— and also ensure that we're still on track to get our budget back in balance and reduce debt over time. So, as a government, we need to work through all of those questions. But the honest answer to questions we do need to be more competitive in that area.  

RB: So you are looking at changing the corporate tax rate?  

NW: Well, there's many different ways we can approach the tax system. One thing is the corporate tax rate, but there are also tax rules that sit underneath that, and I'm actually interested in the detail of the way the whole system works, not just the headline rate.  

Yes, well I think we can say that she's looking at the lowering the corporate tax rate. And she's right, it does cost money. If you are going to take in less of the existing pie, then you'll have a reduction in income. But if the pie is bigger and bigger and bigger, you're taking less of a bigger pie, you're still going to end up with more money.  

Episode Transcript

Speaker 1 (00:06):
You're listening to the Carrywood and Morning's podcast from News
Talks head B.

Speaker 2 (00:11):
So we know times are tough. We know that we're
in a period of rebuilding. We know that there are
green shoots starting to come through. We're looking towards the
end of twenty five as as a time when things
will turn around, when things will start to improve and
things will start to get better on a micro level
in our own households and on a macro level when

(00:32):
it comes hopefully to the government. But there are still
sticky times ahead, and Treasury officials have released a document
warning the government that significant reforms or reductions to public
services will be needed in the not too distant future
if it sticks to its current restricted spending track. The document,

(00:54):
on fourcast sets out the difficulty the government will have
and keeping to its restrictive level of spending so it
can post a surplus and rebuild the balance sheet. This
is what a lot of national governments have to do,
rebuild the crown balance sheet while also maintaining public services

(01:16):
at existing levels. N Colomb and The Herald. The writer
says it paves the way for a twenty twenty six
election campaign, which is likely to involve a battle on
the issue of taxation and the role higher levels of
tax might play and rebuilding the balance sheet without cutting

(01:36):
the services. Of course, we can become a richer nation,
but that will take time. There's only a few ways
the government can generate income, and it's mainly by taxing us.
It can help businesses become more prosperous, more productive, and

(01:56):
then it can clip the ticket on the way through,
but really it's pretty limited into how it raises money.
The rest is on us if it gets out of
the way and if it's doing things right. So each
party has a very different idea on what a fair
taxation system would look like. But right now the party
that actually does have the ability to do something about

(02:17):
tax and using it as a way of attracting foreign
investment into the country is looking at lowering corporate tax
rates and that of course would be national as the
senior partner in the coalition government, Finance Minister Nikola Willis
was talking with Ryan Bridge on Drive last night and
she said she was looking at the settings of our
company tax rate and the regulations that underpin it.

Speaker 3 (02:39):
Well, if you compete Zealand with the rest of the world,
we're not as competitive as we used to be, which
is to say that our corporate tax level is reasonably
high when you compare it to the rest of the
developed world. So looking at that, our government says, okay, well,
what could we do to make sure that the tax
settings in New Zealand are supportive of businesses wanting to

(03:01):
invest and grow, realizing that on the other side of that,
we have to pay for it, because if we're taking
in less tax, then we have to find other ways
of getting that money so we can invest in the
things that really matter, our public services, and also ensure
that we're still on track to get our budget back
and balance and reduce debt over time. So as a government,

(03:21):
we need to work through all of those questions. But
the honest answer to question is we need to be
more competitive in that area. So you are looking at
changing the corporate tax right, Well, there's many different ways
we can approach the tax system. One thing is the
corporate tax rate, but there are all sort of tax
rules that sit underneath that, and I'm actually interested in
the detail of the way the whole system works, not

(03:43):
just the headline rate.

Speaker 2 (03:45):
Yes, well, I think we can say that she's looking
at the lowering the corporate tax rate, and she's right, yes,
it does cost money. If you are going to take
in less of the existing pie, then you'll have a
reduction and income. But if the pie is bigger and
bigger and bigger, and you're taking less of a bigger pie,
you're still going to win up with more money. So

(04:08):
really the key is driving productivity, driving confidence in our businesses,
attracting foreign event investment, all of those things that Paul
Bloxam was talking about. The economist I spoke to last
week on Friday, he said, he of the rockstar economy phrase,

(04:30):
was commenting on the fact that now we are at
the bottom thirty eight out of thirty eight in terms
of performing economies, and he said, we need to do
all the things that we are doing right now that
this coalition government is doing right now. Attract foreign investment,
get the free trade deals going, increase productivity, limit regulation

(04:52):
so businesses can do what they do best, and then
you can afford to lower Well, I suppose it's a
finely balanced thing. You've got to attract the foreign investment here,
so therefore you've got to make the corporate tax for a
competitive But when that pie is bigger and growing, then

(05:12):
we are all better off.

Speaker 1 (05:14):
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