Are farmers paying enough tax? the headline asks.
The answer Labour’s revenue spokesman Stuart Nash wants is no but his tough tax talk just shows how little he understands business and tax.
The average dairy farmer pays less tax than a couple on the pension – raising questions about whether the sector touted as the backbone of the economy is paying its fair share.
A couple on a pension doesn’t usually employ several people, produce anything incurring the costs associated with that and earn export income as farmers do, all of which make a positive contribution to the economy in addition to any tax paid.
As the Government prepares one of the tightest Budgets in recent years, cutting into middle-class family benefits and KiwiSaver subsidies, new figures suggest the cuts will hit those also shouldering the greatest tax burden – wage and salary earners.
Inland Revenue Department figures provided to Labour revenue spokesman Stuart Nash show that, in the latest full year for which figures were available, the average tax paid by dairy farms was $1506 a year, despite an average Fonterra payout understood to be well over $500,000.
The payout is a gross figure, tax is paid on income after expenses which include wages, repairs, maintenance, power, fuel and interest. If you’re heavily indebted as many dairy farmers are there’s little if anything left after all that on which tax is due.
The figures also show that more than half – 9014 – reported a loss for the 2009 year and 2635 reported trading income of between $1 and $20,000.
Federated Farmers chief executive Conor English said he was not surprised by the figures.
“The reason why there’s not much tax being paid is because there hasn’t been much money made. The average dairy farmer … made a cash loss of $50,000.”
This is why most farmers are using this year’s good returns to pay down debt. Too many took advantage of relatively easy credit, found costs rose faster than income and made little if any profit.
The sensible ones have learned from this and are taking a more Presbyterian approach to their businesses.
Of the nearly 72,000 companies in the primary sector, nearly 40,000 were unprofitable.
This includes sheep and beef farmers who’ve have had a series of very bad years. But making a loss in one, or even a few years, doesn’t make a business unprofitable. Most businesses in the establishment and development stages make losses. That’s even more likely in primary industries which are subject to so much variation in climate and markets.
“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,” Mr Nash said. “I hope it’s the latter. If they are facing dire financial trouble then we as a nation are in the poo.”
When you’re in business you are legally allowed to write income off against expenses – providing they’re business related ones and anyone who tries to get away with non-business related claims won’t get far.
Mr English said the primary sector was responsible for 66 per cent of exports but, for each dollar earned overseas, only 6c went to the farmer. “So the other 94c goes in rates to the local councils, road user charges … all the cost structures around getting that kilo of meat from the farmgate to the shore …”
Revenue Minister Peter Dunne said the figures released by Mr Nash did not raise any policy issues. The $26m tax mentioned came from those who identified themselves as in dairying, he said.
Those not classified by industry paid another $1.5b in tax and a significant number would be dairy farmers.
“We don’t think the [tax] figure is as low as $26m by any stretch of the imagination.”
There has been a problem of low profitability in the last few years. But most farmers have got the message the government is sending – consumption fuelled by borrowing isn’t sustainable. They’re containing costs, paying off debt and most will be paying a lot more tax on this season’s income.
Busienss NZ says the claims are misleading:
Operating costs and business debt shouldered not only by farms but all businesses are reflected in their level of taxes paid, says BusinessNZ.
Commenting on claims by Labour revenue spokesman Stuart Nash that dairy farmers pay less tax than a salary earner earning $50,000 a year, BusinessNZ said the comparison was misleading.
“Businesses have income structures that take into account the cost of doing business. This is a cost not borne by a salary earner.
“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.
“This means that many businesses would not have the $50,000 income that is being used as a comparison.
“Comparing this situation to an employed person’s $50,000 income – that does not have to account for operating and business debt costs – is not a valid comparison.”
Peter Dunne says dairy farmer tax headlines simply wrong:
Media headlines today comparing dairy farmers’ tax bills with those of the average wage earner were based on “an inexcusable fudging of turnover and income”, Revenue Minister Peter Dunne said today.
“This is a classic case of comparing apples and oranges – the media and the Opposition have conveniently ignored the fact that businesses, including farmers, are not taxed on turnover, they are taxed on the income they have as profit,” Mr Dunne said.
“The particular instance cited was for 2008-2009, when dairy farmers received significantly lowered Fonterra pay-outs, and were servicing very high debt levels across the sector at high interest rates.
“Federated Farmers has stated that the average dairy farmer made a $50,000 cash loss in that year. In that case, pointing to $500,000 incomes is patently ridiculous. Again it is the difference between turnover and profit,” Mr Dunne said.
He said that suggestions of the Government going soft on any businesssector did not fit with the $119.3 million allocated over four years in Budget 2010 to clamp down on tax evasion.
Turnover, income- what’s the difference when you’re chasing headlines?