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A 20 per cent SME tax rate is not a miracle. It is not a black hole either. New Zealand First will campaign on cutting the company tax rate from 28 per cent to 20 per cent for firms with turnover under $30 million. They cost the first year at about $1 billion and say the medium term covers it through more activity.
A billion will vanish faster than a magician’s rabbit. End of story. Close the register, dim the lights, send the fabricator back to 28 per cent so the commentary can rest easy. That is a cash-flow tale, not an economic one. Company tax is paid on profit.
Leave eight points in the business and some of it is spent on plant, wages and stock before the next return is filed. Some of it may moonlight as a dividend. Shocking news: business owners are not monks. They take the risk. Some want the reward quickly. Others are in for the long haul and will choose to grow first.
A 20 per cent rate does not invent a thousand new shops. There are not that many New Zealanders willing to put their necks and houses on the line. Often you can sit behind the tools or the desk and earn more than the owner, especially when a business is in its infancy – many do not make it to their teens.
In 2024 small firms opened and closed in almost matching numbers: about 68,000 in, 66,000 out. After ten years, only about a quarter of the zero-staff start-ups are still on the register. Firms with a few staff do better; even then, fewer than half last a decade. Liquidation makes the news. Most exits are quieter. The cut leaves eight points with the ones that already survived long enough to have a profit.
New Zealand is a nation of small firms, dairies, butchers and barbers, not mid-sized factories. About 617,000 enterprises. Three in four have no paid staff. Almost all of the rest have fewer than 20. That is the official small business: under 20 people. IRD already calls GST turnover over $30 million – or 50-plus staff – a significant enterprise. Three-quarters of small firms turn over under $1 million. Only about one in 20 of that sector clears $10 million. So a 20 per cent rate under $30 million is not a boutique carve-out. It is the paddock. The 28 per cent argument is for the thin slice that already employs the intern.
The honest line is: year one is cheaper for the workshop and dearer for the Crown. Years two to five decide whether that was a transfer or an investment. If it was only a transfer, say so then.
New Zealand is an OECD productivity laggard. Too little kit behind each hour, and power that is too expensive or not there when industry needs it. Tax the extra hour and the machine until people stop and you get an empty till and a press release about fairness. Living standards move when farms, factories and SMEs are firing on all cylinders. They do not move when the seminar class slaps on another levy as if, hours, sales and investment will sit politely still.
The left’s answer is the mirror image. More tax – capital gains, land, wealth, a higher company rate – billed as if workplace owners cannot add. They can. The apprentice is not employed. The lathe is not bought. Revenue looks short, so in the next budget the minister reaches for another rate and calls it “courage”. When the downside is your house on the line and the upside is 28 per cent plus a classroom lecture and a homily, some will walk. You do not get their PAYE, or the others they may have employed.
OECD still ranks company tax as the levy that does the most harm to growth. A 2026 reassessment found a typical 2.5-point cut associated with more capital behind each worker within two to five years.
Quebec cut the small-manufacturer rate in 2014. Those firms hired, bought plant and lifted pay. Instant write-off of machines often moves kit faster than a rate cut alone. Pair 20 per cent with a production-only investment boost and you are copying the bit that buys the lathe.
Australia already taxes qualifying small companies at 25 per cent, not 28 per cent. Their commission has modelled 20 per cent.
New Zealand has done a version of this before. In the late 1980s the top rates came down and the tax base widened. That was a bet that people would still turn up. They did. The 1970s were a different show.
If this coalition is still the government after 7 November, investment boost – National’s 20 per cent first-year deduction – is likely to stay in some form. What is negotiable is the shape: plant only, a tighter SME weight and a higher first-year clip. The 20 per cent company rate is an opening bid at a table with the two other partners.
Eight points on a modest profit is an apprentice, a second shift or the machine purchase that was going to be deferred. It is also, sometimes, a dividend and a slightly nicer boat.
Both can be true. The policy is a bet that enough of the first happens to matter.
A 20 per cent SME rate is not a magic wand that will rebuild the country on Tuesday. It leaves more of the profit with the people who hire. Applaud that.
