Cut Corporate Welfare

The Taxpayers’ Union has today launched new a report, Monopoly Money, which examines the cost and case for New Zealand’s extensive corporate welfare programmes. 

The report, which examines the cost of corporate welfare since the 2007/2008 budget, shows:

• Since National took office, corporate welfare has cost taxpayers $1-1.4 billion ($600 - $800 per household) per year

• If corporate welfare was abolished, enough money would be saved to reduce the corporate tax rate from 28% to 22.5%

• If applied to personal income tax rates, the saving would allow the 30% and 33% income tax rates to be lowered to 29%

• Alternatively, the 10.5% rate (applicable to the first $14,000 of income) could be reduced to 7%.

Labour MP, Stuart Nash, and Chief Executive of the Auckland Regional Chamber of Commerce & Industry, Michael Barnett, ONZM, have provided forewords to the report.

Mr Nash says:

"Given that politics is a contest of ideas and vision, any government spending on the scale identified in this report should be transparent and open to public scrutiny. I therefore welcome the Taxpayers’ Union efforts in this area."

Mr Barnett, says:

“Corporate welfare seldom represents a good or fair use of tax and ratepayers' money. The report shows that evidence of substantial benefits is scant and limited.”

The report’s author, Jim Rose says:

"Taxpayers and politicians from all sides of the political spectrum should ask whether the public gets value for money from these business handouts."

Bill English was right when he said last month that welfare is like crack cocaine. There needs to be a real effort to beat the vested interests and put an end to these corporate welfare programmes.

This report will serve as a wake up call for taxpayers - the per household cost of the corporate welfare detailed in the report equals between $600 and $800 every year. The amounts may be justified - if the Government is a better investor than private citizens. The economic evidence, however, suggests that governments, politicians and bureaucrats do not have the market disciplines to be better investors on a consistent basis. 

To read our report full screen click on the image below. Alternatively, you can download the report as a PDF by clicking here.

Science and Innovation Minister, Steven Joyce hit back at us regarding our recent criticism of the Government's corporate welfare efforts, such as the millions of taxpayer dollars going into ‘company incubators’. The NBR reported on Thursday:

Eight new company incubators are to receive funding under Callaghan Innovation’s incubator support programme.

Callaghan, the government funded innovation hub, has included three new technology-focused incubators and five founder-focused incubators in its latest funding round. 

The three new tech-focused incubators are PowerHouse, Astrolab and WNT Ventures, and will be eligible for up to $450,000 worth in repayable government grants, with the incubator companies matching funding at a one to three ratio of up to $150,000.

...

The tech-focused incubators will focus on commercialising Intellectual property, primarily sourced from publicly funded research organisations, like universities and Crown Research Institutes.

The repayable grants are a trial programme, which was allocated $31.3 million over four years in the 2014 Budget.

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However, the Taxpayer’s Union executive director Jordan Williams has described the government grants as an “example of politicians thinking they know more than IT entrepreneurs.

On Friday, Mr Joyce went the offensive:

Joyce slams Taxpayers’ Union attack

Science and Innovation Minister Steven Joyce has slammed the Taxpayers’ Union’s attack on the minister as a “fundamental misunderstanding” by its executive director Jordan Williams.

Mr Williams described the $31 million worth of grants to eight new company incubators - under Callaghan Innovation’s incubator support programme - as an example of politicians thinking they know more than IT entrepreneurs.

Mr Joyce says Mr William’s comments show a fundamental misunderstanding of both technology-based start-up companies and the intention of the government’s policy.

NBR ONLINE asked the Minister how Callaghan Innovation justifies a 3:1 funding ratio, with the taxpayer taking on 75% of the risk?

Mr Joyce replied that the incubators would be funding early stage companies that have arisen from public research organisations, where generally the taxpayer has paid up to 100% of the costs of the research.

“The projects that are funded via the incubator are still very early stage, with significant technical risk. The aim of the programme is to get private sector expertise in very early so that the projects have a greater chance of success. 

We have called on Mr Joyce to explain what the ‘fundamental misunderstanding’ is. Instead of rebutting our criticisms of the policy, Mr Joyce has just reiterated what the ‘intentions’ are. Unfortunately even the worst policies have the best of intentions.

We hoped to be proven wrong on our fear that the grants are interest free. Instead the Minister confirms the worst, with 40% of the grants expected to be written off and the rest not even adjusted for inflation.

In February the world's third largest software maker, SAP, which last year posted a profit of €1.80 billion, received a similar ‘growth grant'.

For us, the key question are:

• Where is the evidence that the return taxpayers get from the successful start-ups compensate for the money lost on the half that fail?
• Who is ensuring that the decisions made by politicians on what businesses to back are better than what would have happened had the money stayed in taxpayers' pockets?

Yesterday Stephen Joyce announced:

We think this is corporate welfare - the only winners are the sheep and beef farmers who will ultimately profit. Like most corporate welfare, it’s everyday taxpayers who will be left out of pocket.

As Mr Joyce goes on to point out in the release, New Zealand already leads the world in pastoral animal and plant genetics.

“As a nation, we are already leading the world in pastoral animal and plant genetics. This partnership will help us maintain this critical position and to continue to build on it through further research and development in sheep and beef genetics.”

The first part of that paragraph is correct - NZ does lead the word. What is not clear is why taxpayers need to stump up to keep us there. Why does this multi-billion dollar export industry suddenly need the Government pouring millions into it? Expecting increases in farmers' profits is not justification.

This funding is for good headlines, not good economics. What other industries have their normal research and development costs borne by the taxpayer?

Last week we released material showing that millions of dollars is being wasted in a CTU/Business NZ deal for health and safety training that, according to ACC's experts, for every dollar spent 84 cents is wasted. As you'll recall, the Minister of ACC, Judith Collins, labelled the scheme a 'sham' and a 'rort'. It was clear that millions intended to improve workplace health and safety was being used for programmes that did little, if anything, except 'raise awareness'.

We are pleased to report that, despite the initial doubt, the Taxpayers' Union has now confirmed that ACC is cutting the taxpayer funding of the Council of Trade Unions and Business NZ for this dodgy training program. We understand that the final contracts revealed last week dramatically reduce the funding Business NZ and the CTU receive.

This is a big win for levy payers - who will no longer have the burden of funding a deal that achieves little, if anything. For workers this is a win - the money can now be redirected to measures that actually reduces accidents. It's also a win for Business NZ and CTU members - no longer are the two organisations conflicted in their ACC advocacy for members.

ACC has now publicly stated that the this training programme will end this year. That, combined with the CTU and Business NZ's new contracts is a policy victory.

Stuff has just reported:

BusinessNZ rejects training scheme attacks

Business NZ has hit back at ACC Minister Judith Collins over her attacks on an ACC-funded health and safety training programme run by Business NZ, the Council Of Trade Unions and a private provider.

ACC announced this week that the $1.5 million a year programme would be canned at the end of of 2014 because it was not providing value for money.

Collins had joined criticism of the scheme, which has run since 2003, describing it as a cosy arrangement that had the hallmarks of a scam and a rort.

Business NZ today broke its silence on the issue, with a press release quoting its chief executive, Phil O'Reilly.

"For the record, Business NZ utterly rejects mistaken allegations made by lobbyist Jordan Williams since repeated by the ACC minister," O'Reilly said.

"The BusinessNZ family's involvement has been completely ethical at all times, and I am confident that this is also the case with the involvement of the CTU and Impac Services."

The CTU has also strongly rejected the criticisms by Collins and Williams.

O'Reilly said it was "unfortunate that important debate on workplace safety has been undermined by intemperate media comment".

Media reporting of uninformed assumptions by Williams appeared to have led to the minister's comments, O'Reilly said. continue reading...

Yesterday it looked like the Taxpayers' Union struck up it's first win, with ACC announcing that it would scrap the health and safety training scheme which has cost levy holders $19million to date, with 84 cents per dollar being wasted (even with optimistic assumptions).

ONE News, 3 News, the Herald, Stuff, Radio NZ, and Newstalk ZB all reported that ACC had decided to scrap the programme late last year.

Tonight's TV news coverage of the corporate and union welfare exposed earlier today.

ONE News: $19m wasted on health and safety training with 84c per dollar wasted

Click here or the image below for video on demand.

3 News: ACC dumps workplace training scheme

Click here or the image below for video on demand.

Material released by the Taxpayers’ Union show a cosy deal between Business New Zealand, the Council of Trade Unions ("CTU") and ACC has cost ACC-levy payers $19 million since 2003.

The documents, available and summarised below show ACC knew that millions paid to Business NZ and the CTU to provide health and safety training did little, if anything, to reduce workplace accidents.

Yesterday the Prime Minister announced a deal with Hollywood studios that will allow up to 25% tax rebates on film production expenditure within New Zealand.

While we can all applaud our world-class film industry and the jobs the deal will create, why is the film industry so special? Many industries are still suffering from a high dollar and increased international competition. As the Government acknowledges (at least for film producers) tax matters when it comes to business choosing what country to invest - we compete against the world.  Why should less high profile or ‘cool’ industries shoulder the burden while the film industry is sheltered – would we better off if the Government worked harder to lower taxes for all?  

KPMG have a useful tool to compare tax rates (corporate, individual and indirect) on their website. 

Click here to comment on this blogpost via the Taxpayers' Union Facebook page. Should we working to become more competitive overall, or should we encourage our politicians to 'cut more deals'?  At what point does it become corporate hand-outs?

Over the coming months we'll be exposing corporate and union welfare we think is wasteful or unfair on Kiwi taxpayers.  If you have an example you think our researchers or members should look into, please let us know via our online tip line.