Business ignorance is not bliss
Released 27 May 2011
Don Nicolson is Federated Farmers President
The Dominion Post's editor asked last week in an editorial if it was ‘time to pluck rural geese a little harder'. She wasn't talking about Canada Geese, but dairy farmers and it got talkback radio buzzing. This wasn't some sneering online comment but came after her paper claimed dairy farmers were avoiding tax. Printed on the front page in red with, ‘is this fair?', it was also the stuff that comes out the backend of a bull.
This entire story is frankly a big indictment on our nation's financial illiteracy. A television news vox pop in Auckland recently asked people if they knew what the NZX was. It drew a blank until one person helpfully suggested it was a pornographic magazine. It's the same we get from self-professed business commentators who have no qualifications, but plenty of opinion. They somehow think we can tax our way to wealth with a Land Tax and a Capital Gains Tax. That's just rearranging the deck chairs on the Titanic. The only way we'll increase tax revenue is by becoming wealthier. That means adding value and selling more goods or services overseas while convincing tourists to look beyond a high Kiwi dollar.
What about the tax paid by the owner of The Dominion Post - Fairfax of Australia? In 2009/10, it paid A4.62 cents in the dollar in tax. That was vastly more than in 2008/9, when with revenues of A$2.59 billion, it got away with just A1.14 cents in the dollar. The owner of The Dominion Post and Trade Me in that year paid a total tax bill of just A$29.7 million in New Zealand and Australia. Given the Dominion Post's editor and Labour MP Stuart Nash have mounted the pulpit on farms, I can't wait to see their plans for Fairfax. Or perhaps, those in glasshouses shouldn't throw stones.
Yes, the average dairy farm may have averaged $500,000 in revenue in 2008/9, but it also averaged $558,500 in expenses. You don't pay tax on red ink. DairyNZ rightly points out that the average dairy farm in the past ten years paid taxes of $28,225 each year. That's a far cry from what's in The Dominion Post, which also found 5,553 more dairy farms than we ever knew existed. If we're playing the averages game, then dairy farms collectively pay $300 million in tax each year, eleven times more than the $26 million claimed. On top, there is an average of $137 million each year paid by dairy farms in council rates.
Revenue is not profit. It does a great injustice to farmers and to the understanding of basic commerce and accounting when MP's and newspapers peddle this untruth. Farms are businesses and farmers are business owners. Just like plumbers, The Dominion Post or a corner dairy, a farm's legitimate business expenses can be netted off against income. A corner dairy may sell $500,000 worth of goods, but that is not its profit. It has to pay for stock and the cost of running the business. This is really basic stuff.
Upwards of 65 percent of any dairy farm's revenue is spent on things like vets, feed, fertiliser and electricity. That's all before servicing an individual farm's debt. In the 2008/9 season, the Kiwi farm collectively generated $23 billion in exports but farmers kept just 6.2 percent of this sum. Readers of this paper benefited from the 93.8 percent farmers didn't keep so who's farming the farmer, really?
If we wish to have a debate on taxation then do it intelligently as opposed to the tired notion of class conflict masquerading as journalism.
