A group of Auckland-based ICT industry figures has delivered its policy wish-list to the politicians of major parties, setting out an agenda for progress in ICT development that is far more specific than in many strategy documents seen to date.
The Auckland ICT Top 100 group, which was formed under the auspices of the New Zealand Computer Society but does not represent its views, has developed a 13-plank programme to incentivise ICT development and reduce compliance costs for start-ups and small ICT companies.
New Zealand Computer Society fellow Ian Mitchell says the group behind the programme is non-partisan and even includes an active Green Party member. Mitchell himself is not a member of any party, he says.
The paper argues that tax and compliance issues have a major impact on ICT start-ups. Entrepreneurs not only have to develop innovative new software but also manage a business while seeking capital and marketing their product.
“They are inherently competing in an international arena where other countries offer incentives, such as 14-year tax holidays,” the programme says.
“It is appreciated that some of these issues are complex.
“However, it is time to step over the traditional excuses to do nothing, and focus on creating a environment which enables innovation and creativity, and which enhances productivity.”
The paper says the 39 cents tax rate at $60,000 is negative for talented ICT graduates, who can expect to hit that threshold in three years
“Most ICT staff will be in the top 17% of salaried earners and, hence, will be paying the 39 cents rate on the top of their salary.”
Coupled with the higher salary rates available in Australia, with ICT salaries even more out of whack than the averages often published in the mainstream papers, a brain drain is inevitable, it says.
“Positions paying around NZ$100,000 per annum in New Zealand pay around A$200,000 in Australia.”
The Top 100 group also argues that in disciplines where there are skills shortages, the ratio of state/student funding can be honed.
“New Zealand should allow repayment of student loans by employers as is done in the USA — tax-deductible to the company and student-now-employee, provided they are paid as bonuses for joining, performing or for retention.
“This focuses students on disciplines that are clearly required by private enterprise. This really lets companies invest in new talent and retain them, at least initially.”
The paper also suggests student loans could be waived for masters and doctorate students, to increase the proportion of students taking their studies to the next level and gaining research skills.
The programme calls for tax compliance cost minimisation as well. It puts the average cost of accountancy services to small businesses at $3,500
“We need to identify when companies are small and are active businesses (and not investment shells) and simplify the tax compliance burden. Perhaps, initially, limit these changes to companies of less than 10 full-time (equivalent) employees and $10 million in revenue.
“Most early stage software development is done in small businesses. The tax and tax compliance costs of such businesses must be minimal.”
One reform that could drive down compliance costs is depreciation, says Mitchell.
“Capitalising and depreciation is a very substantial overhead, and a trigger point sending businesses to accountants,” he says. Getting rid of depreciation for smaller assets would have a substantial impact on compliance costs.
The paper recommends setting the limit for depreciation for items costing above $10,000.
“This means that client computers, cellphones and printers ecetera will not have to be depreciated. Depreciation only affects when tax on profits is paid rather than the amount to be paid. When start-up companies first make a profit they are probably still struggling with funding growth and thus depreciation only adds to the stress of growth.
“Capitalising computer software, particularly in software development shops, where there is a complex mix of research and product development and of client requested software changes, leads to excessive record-keeping. It is a tax on creativity — just give it away.”
The paper also calls for FBT reforms on computers and connectivity provided to workers, on transport and on environmentally friendly vehicles.
At the local level, it calls for local authorities to require all new office buildings and residences to provide fibre termination in the building if within 500 metres of a fibre cabinet.
“Local bodies should fund, with central government support, open ducting to all buildings, including residential, where there is a reasonable occupation density. Standard agreements would permit telcos to use the ducting on a shared basis,” it says.
Tax holidays should be provided for start-ups, particularly if they are earning overseas revenue. Mitchell points out that Fisher & Paykel received a 14-year tax holiday when it set up shop in Thailand.
Among other recommendations are the removal of double taxation on offshore revenue, reform of the personal grievance rules and a probation period for new employees.
“It is difficult to assess new employees, particularly if they have had little work experience,” the paper says.
“Immigrants with English as a second language, a different culture and body language would benefit from a probation period as employers would be more willing to take a risk on a new hire.”