Import Taxes

Day 1,074, 13:49 • Published in New Zealand New Zealand • by SledDog

Necros Xiaoban recently wrote an article on taxes, which explained what they were, their essential purpose and what he thought they should be. I read the article with interest because as a company owner who is importing into New Zealand, tax policy has a direct impact on me. I don't think that anyone will disagree with me when I say that the Tax Scheme imposed by the Admins when New Zealand and the other new countries were created needs to be changed. I do disagree with Necros Xiaoban on a couple of points.

My principal disagreement with Necros Xiaoban is the matter of Import Tax. He writes: "Income [sic] taxes have the effect of forcing exporters to reduce the price of their goods in order to compete with the domestic market; if the market is selling at $1.50, and the Import tax is 50%, the exporter must sell their goods at $1 in order to stay competitive.
Thus, Import taxes are used to protect domestic businesses by deterring foreign exports from entering the market."

That's one way to look at Import Taxes. The other way to look at them is as leveling the playing field. Let's acknowledge the fact that businesses are in business to make a profit. One way to turn a profit is to export your goods to a place where the existing prices are high enough that you can sell your goods for a profit below the prevailing price. This can occur because you're wage are lower than the domestic wages or the price of raw materials is lower in your country than it is on that market. That means that you can undercut the local market with little problem.

Here's a concrete example based on the current rate of exchange:
In New Zealand 1 Gold buys 999 Grain at $0.03
In the USA 1 Gold buys 1268 Grain at $0.04
So that US grain company can take that 1268 Grain and put it on the New Zealand market for $0.03 and turn a 26.9% profit in addition to whatever profit he makes on the US market. If the difference in the value of the currencies is sufficiently big - in this case over 33% - that company can sell on our market for $0.02 and probably sell everything he offers because his competition here can't turn a profit at the lower price.

Call this protectionism if you want but the impact of unrestricted imports can be huge. I have no problem with the American company selling for the same price as our companies and turning a larger profit because there is no advantage in buying from the rather than from a domestic producer. However, if a large enough number of companies are selling in our domestic market at a price lower than our local companies are able to turn a profit at it will force our companies out of business. This in turn will reduce domestic employment and the amount of revenue earned through income tax.

Let me make myself clear. I don't advocate excluding foreign companies from the domestic market. I'd better not; I own one of them (Bren Gun artillery). What I do advocate is making sure that our domestic companies - particularly in those areas like Grain and Food where we have a natural advantage - aren't undersold. What I advocate then is a monthly review of Import Taxes based on what is being produced domestically and what product from foreign companies on our market is selling for. We may eventually come to a point where a 1% Import Tax across the board is the right approach to take, but I think that things have to be reviewed on a case by case basis.