Flat tax rate for city idea opposed

MICHAEL BERRY
Last updated 05:00 25/01/2013

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A flat business tax rate of 10 per cent could help Christchurch flourish and quicken the city's recovery, business commentator Sam Stanley says.

However, economists and business leaders spoken to by The Press say it would be unworkable and possibly unfair.

Canterbury Earthquake Recovery Minister Gerry Brownlee would not comment on the idea.

Stanley, a former foreign exchange trader, is head of business strategy and sales at Kiwi sharemarket operator NZX in Wellington.

Yesterday, he floated the idea of the Government introducing a flat tax of about 10 per cent for several years to encourage large companies to invest in Christchurch, increasing employment and boosting the regional economy.

It would also support startups in the city and help existing businesses that were struggling, he said.

He said his views were not those of the NZX.

He thought creating a low-tax regime for Christchurch seemed a more efficient way of paying for the recovery than by tax rises or new levies.

UBS New Zealand senior economist Robin Clements said national flat tax rates had been sponsored by ACT and other parties for many years.

"The principle of a flat tax rate is good, but the question mark is about whether you could do that for just one region in a country," he said.

"I'm not sure it's been tried before, and if you did that, what would the consequences be?"

Whether New Zealand could still afford to pay for its education, health and other social commitments if the tax take from one of its main cities was significantly cut was another factor, he said.

Clements said Christchurch could be helped by allowing new buildings and repairs to be tax deductible, or something similar.

New Zealand Manufacturers and Exporters Association chief executive John Walley said that for a low-rate tax regime to be successful it would have to be enshrined for at least a decade, otherwise "no-one would bank on it".

He was sceptical and believed tax incentives had to be made at a council level, rather than by the central government.

Reducing development contributions to the city and district councils would be a good way of encouraging more building, he said.

"We need to focus on the rebuild. The rebuild is something we need to do for ourselves," he said.

Canterbury Employers' Chamber of Commerce chief executive Peter Townsend said he did not agree with a special tax rate for the city, and chamber directors had not considered it.

New Zealand's relatively simple tax system was an asset, and there was no need to put that at risk for a splinter tax region. "It would create too many distortions and would be an administrative nightmare," he said.

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Ernst & Young senior tax partner Jo Doolan said: "New Zealand's tax system, although we all complain about it, is straightforward and very easy to administer."

Without having a multi-tier tax system, such as state and federal taxes in Australia, it would be difficult to implement a separate tax regime for Christchurch, she said.

The tax burden for the rebuild would fall almost completely on Kiwi taxpayers in the rest of the country, which would be unfair.

A spokesman said the Treasury had not prepared a report on the subject.

- The Press

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