Is the rural sector paying enough tax?

JOHN HARTEVELT

Tomorrow's Budget will tighten the tax net around farmers, as new figures show dairy farmers on average paid just $1506 each in the 2009 tax year.

When pressed over tax figures revealed by Fairfax Media this morning, Finance Minister Bill English said there would be "moderate measures" aimed at farmers in the Budget.

''People can't just choose the amount of tax they pay. There is a set of rules and you have to comply with those rules," English said.

''In fact, in the Budget there will be some measures that specifically tighten the taxation of farmers further and IRD are committing significant resource to tracking down any tax avoidance and that will also be evident in the Budget.''

Figures released to Labour MP Stuart Nash showed that 17,244 dairy farms paid $26 million tax in 2009. Tax paid by the agricultural, forestry and aquaculture sector was $319m. At the same time tax paid by individuals through PAYE and source deductions was $23 billion.

Nash said Labour would investigate whether farmers in general were paying a fair tax share.

''Either we have a sector in dire financial trouble or the sector is simply writing off a lot of income against expense and not paying tax,'' Nash said.

''I hope it's the latter. If they are facing dire financial trouble then we as a nation are in the poo.''

A "PARTICULARLY BAD YEAR" - ENGLISH

In 2009, the average Fonterra payout to dairy farmers was believed to have been over $500,000.

English said it was misleading to look at the tax paid in the context of the payout.

"A dairy farm, like any other business can have a turn over of $10m but if it's spending $11m on wages and supplies then it's losing money and it may not be paying tax," English said.

It had been a tough year for dairy farmers in 2009, and tax revenue in 2011 would be a lot more reflecting a much more profitable year.

Business New Zealand chief executive Phil O'Reilly said it was misleading to compare the tax paid by farmers with wage earners.

"Businesses have income structures that take into account the cost of doing business.  This is a cost not borne by a salary earner," O'Reilly said.

"Farm businesses face capital investment and depreciation servicing costs, debt costs, feed costs and labour costs, in the context of fluctuating cash flows often affected by weather, necessitating further debt for operating costs before receiving end of year payouts."

"WE'RE CRACKING DOWN" - ENGLISH

However, English said the Government was tightening up on tax evasion, and that included on farmers.

"Look, they've got to keep to the rules, the same as anyone else," English said.

"They have to pay tax on their legal profits, and if anyone has been avoiding tax illegally then IRD will be setting out to prosecute them.''

Measures in the Budget would be "moderate" and part of a continuous programme to tighten up "a lot of bad behaviour" that people had engaged in over the last ten years.

"The tax structure that the previous Government had in place encouraged people to evade and avoid tax because they set different rate depending on how you classified your income.

"We've tightened up the tax system and reduced that evasion and avoidance."

BACKBONE OF THE ECONOMY

Federated Farmers this morning sent out a NZIER report on the role of dairy in sustaining New Zealand's economy to help ''frame the discussion''.

It found of the $7.5 billion received in 2009 $3.6b was spent on domestically produced goods such as fertiliser, feed, and agricultural and financial services.

The dairy industry provides 26 percent of New Zealand's merchandise exports and employs 35,000 workers directly and 10,000 contractors.

New Zealand households were $6.4b better off due to growth in the dairy sector in the ten years from 1999 and a $1 rise in the Fonterra payout made every New Zealander nearly $270 better off, the report said.

It also said the dairy industry was 40 percent larger than the entire utilities sector and two-thirds the size of the construction sector.

Despite that, IRD figures showed the agricultural sector, including forestry and fishing, paid $319m in tax in 2009. Compared with $486m from mining. Industry as a whole paid $9.7 billion tax.

PriceWaterhouseCoopers chairman John Shewan said dairy farms were subject to the same rules as everybody else.

''I get tired of everybody saying that business people and farmers write off all these personal assets, well they're not allowed to, if they do sooner or later they'll get caught and that's called tax evasion,'' he told Radio New Zealand.

Shewan, who was also on the tax working group, said fairness was a matter for individuals and a system that treated everyone the same was fair.

''People see people driving round in trucks and large cars and having large lots of land and they assume people must be wealthy for that reason, unfortunately when you look at the balance sheet  of many of these operations it's clear that they're not very wealthy at all.''

- © Fairfax NZ News