Labour’s proposed tax plan includes three changes aimed at making life easier for small businesses, from faster invoice payments to simpler tax rules. In a recent episode of Cheques and Balances, James Blair and Michael Vincent sat down with Lighthouse’s Matt Harris to unpack the proposals, where they could make a meaningful difference and where there may still be room for improvement.
What does Labour’s proposed tax plan mean for small businesses?
The first part of Labour’s proposed tax plan discussed in the episode would require large businesses to pay small businesses within 15 days for invoices under $25,000.
For Matt, the idea addresses a problem that extends well beyond small businesses dealing with large companies: businesses simply aren’t always getting paid on time.
Late payments can create a significant administrative burden. Businesses send reminders, chase invoices and potentially use collection agencies before eventually having to consider court action. Matt believes a broader requirement for businesses to pay one another within an agreed timeframe could reduce the amount of time and energy spent chasing money.
More importantly, getting paid on time matters for cashflow.
Lighthouse itself aims for around a 16 to 17-day payment cycle, despite invoices being due after 14 days. Matt points out that managing payments requires significant resources, while cashflow remains one of the most important factors in keeping businesses operating.
His main concern with the proposal is how it would be enforced. If a large business doesn’t pay within 15 days, there needs to be a clear mechanism for what happens next and meaningful consequences for ignoring the rules
Could Labour’s proposed tax plan make business investment easier?
The second change in Labour’s proposed tax plan would increase the asset write-off threshold from $1,000 to $10,000.
Currently, if a business purchases a capital asset worth more than $1,000, such as a laptop, it generally needs to depreciate that asset over its useful life rather than claiming the entire amount upfront.
Under the proposed change, eligible assets costing less than $10,000 could instead be claimed in the first year, giving the business an immediate tax benefit.
Matt sees two clear advantages.
Firstly, businesses could receive the tax deduction immediately rather than spreading it across several years. Secondly, it could reduce some of the administrative work involved with maintaining long depreciation schedules for relatively small assets.
Lighthouse, for example, has around 55 to 60 laptops in the office alongside phones and other equipment. Each of those assets can contribute to an increasingly long depreciation schedule despite individually being relatively insignificant.
Matt also points to inflation. Items that may previously have cost less than $1,000 can now cost $1,500 or more, making the existing threshold increasingly restrictive. In his view, lifting it to $10,000 could be a meaningful change for businesses.
Raising the GST registration threshold
The third proposal discussed was increasing New Zealand’s GST registration threshold from $60,000 to $80,000.
Currently, if a business turns over more than $60,000 within a 12-month period, or expects to do so, it needs to register for GST.
Matt sees increasing the threshold as another sensible change, particularly given inflation and the compliance burden that GST registration can create for smaller businesses.
Once registered, businesses need to charge GST and complete GST returns. That introduces additional complexity and potentially additional accounting and compliance costs.
Mike shared the example of someone renting their home through Airbnb who deliberately remained below the existing $60,000 threshold because exceeding it would make their situation more complex. The additional income was helping them cover much of their mortgage while visitors coming into New Zealand were also spending money elsewhere in the economy.
According to the discussion, increasing the GST threshold from $60,000 to $80,000 could directly affect around 35,000 small businesses in New Zealand.
What else could change for small businesses?
While Matt was positive about Labour’s three proposals, he also outlined several tax changes he would consider if the goal was to provide further support to businesses.
The first involves tax debt.
Businesses that fall behind on their tax can face use-of-money interest and late payment penalties. Matt argues that these costs can make it increasingly difficult for businesses to clear their original debt, particularly as interest continues to compound.
His suggestion would be to reduce these rates and provide wider provisions for writing off penalties when businesses make lump-sum settlement payments.
Importantly, he argues that businesses can fall behind on tax for legitimate reasons. A business experiencing cashflow problems because its own customers haven’t paid on time, for example, may choose to keep employees working rather than immediately meeting its tax obligations.
Rethinking GST for service businesses
Matt’s second idea focuses on GST and salaries.
When a business completes a GST return, it can generally claim GST on eligible expenses against the GST collected through its income. Salaries and wages, however, aren’t subject to GST.
For service businesses where staff represent a significant proportion of their costs, Matt says this can create a substantial mismatch and result in large GST bills because they can’t claim the full cost involved in providing their service.
James raised hospitality as an example of an industry where allowing businesses to claim against salaries could potentially provide additional capacity to employ more people.
Could removing GST make new builds more affordable?
Matt also raised a more left-field proposal: removing GST from new-build properties.
As he explains, most buyers aren’t GST registered, so they simply see and pay the GST-inclusive price of a property. He used the example of a $1 million new build, where he said around $100,000 of the purchase price could represent GST.
Removing that cost could potentially bring the property closer to $900,000, changing the affordability equation for buyers while supporting new housing stock.
The obvious trade-off is government revenue.
With the country already running a deficit, reducing taxes raises the question of where that revenue would be replaced. Matt’s view is that governments should also consider how they manage spending rather than assuming new or higher taxes are always required.
Why small business policy matters to everyone
It’s easy to assume these policies only matter if you own a business.
But as Matt points out, most New Zealanders regularly rely on small businesses. They get their hair cut, have their cars repaired, pay someone to mow their lawns or use professionals to help with their finances.
Small business policies can also influence whether someone decides to start working for themselves.
Mike gave the example of a hairdresser who might reduce their employed hours and begin working for themselves on weekends. Reducing compliance barriers could make that first step easier, potentially allowing someone to grow their income, expand their business and eventually employ other people.
For Matt, that’s ultimately what good policy should help achieve: removing unnecessary barriers so people and businesses can do more.
Key takeaways
- Labour’s proposed tax plan includes three changes discussed in the episode: faster business payments, a higher asset write-off threshold and a higher GST registration threshold.
- Large businesses would be required to pay small businesses within 15 days for invoices under $25,000.
- Matt believes faster payments could improve cashflow and reduce the time businesses spend chasing unpaid invoices, although enforcement remains an important question.
- Increasing the asset write-off threshold from $1,000 to $10,000 could give businesses more immediate tax deductions while simplifying depreciation.
- Increasing the GST registration threshold from $60,000 to $80,000 could reduce compliance requirements for thousands of small businesses.
- Matt would also consider reducing interest and penalties on tax debt and changing how GST interacts with salary and wage costs.
- Small business policy doesn’t only affect business owners. Stronger businesses can create opportunities for people to work for themselves, employ others and contribute more broadly to the economy.
Next steps
If you’re running a business and want to understand your tax position or make sure your structure is working effectively, speak with the Lighthouse Financial accounting team.
If you’d like to watch more, check out this episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
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