Industry’s tax burden

Press, 17 April 1979, Page 20

Industry’s tax burden

The thing that rankles New Zealand’s computerindustry most is the 40 per cent sales tax imposed by a Labour Government in 1975. and unrepealed by the two National Governments since. The argument, used most frequently against it is that computers are an aid to productivity; New Zealand is desperately in need of increased productivity; therefore a disincentive such as the tax is absurd. Another argument is that competitor countries have no such penalty to bear; some indeed have incentives to the introduction of computers by special depreciation allowances. The tax can be huge on a purchase — as much as SI.6M on an IBM 3033 processor. Some sources in the computer industry say, however, that the tax does not stop firms from buying computers, but merely delays the purchase until the firm has grown sufficiently lo meet the higher capital outlay. Thus the tax might be seen as a brake on the drive to heller productivity rather than as a barrier.

Il might be argued that in a time of unemployment it. is wise to delay technology which will reduce jobs. But computers have not reduced the number of jobs, it is argued. Most firms that have installed them say that employees get new jobs in the organisation, redundancy is the exception. And if computers probably have probably reduced the number of new jobs created as business, has expanded, the computer industry itself has made new jobs — 10,000 to 15,000 in New Zealand. How a computer can help New Zealand industry is shown by the well-known Christchurch firm of C.W.F. Hamilton and Company, Ltd. Hamilton’s has to compete in overseas markets with firms that, because of their home market and their own size, are able to specialise in products, Hamilton’s produces a variety of products, including completed boats and barges, cranes, and earth-moving equipment as-well as jet-boat units. Because it must make such a range of products in a plant tiny by international standards, Hamilton’s is at an immense disadvantage compared with its overseas competitors. Making a smaller range of products, the foreign firms can set up

assembly lines, reap from the economies of scale, and plan and operate unsaddled with the complexity of scheduling Hamilton's huge variety of parts through the factory. But in the last. 18 months Hamilton’s has found a new aid in a computer software system. IPICS (Intitial Production and Information Control System). This recently developed system, using the firm's IBM computer, has given Hamilton’s a new means of production scheduling, product costing, and controlling material and inventory supplies. It has lessened some of the odds against a batch-production system competing against assembly lines closer to, or in the main markets of the world. The system has enabled shorter lead time in production and allowed cuts in inventory and raw material supplies. freeing capital for other tasks, and, of course increasing productivity. Hamilton's has a world market for its jet units, and exports represent 35 per cent of lit, total production. This has been recognised by the Government, but the company still had to pay 40 per cent sales tax on its computer, which spends much of its work time processing information for manufacturing. The national computer

network established by Christchurch-based International Harvester New Zealand is another case where produtivity is being helped. (Productivity is defined by Alan Gilpin .in the ‘‘Dictionary of Econodic Terms” as: “The efficiency with which productive resources, i.e. labour, capital and land are used.”) International Harvester has parts-distribution centres in Auckland and Christchurch, six retailer branches, and 50 dealers. The main products are tractors, trucks, combines, balers and payloaders. In 1975 an IBM 370/125 was installed and a national terminal net work begun. At present the parts-distribution centres, the branches and 17 dealers are on the network. Others will be brought in. The network has resulted in a virtual national pool of spares. As well, invoicing is done on a national scale, stock replenishment is automatic, and salesmen can get instant quotes on hire-pur-chase schemes tailored for ihe prospective purchaser. To suit seasonal businesses, the salesman can feed in which months the prospective buyer cannot afford payments and others in which he wishes to pay the highest amounts. In a flash the computer returns a payment scheme to suit.

Lists of used machinery for sale are stored on the computer. A dealer can ask for types of, say tractor, available by price, or make, or age, and the list will come up on his screen. Each dealer retains confidentiality of his own accounts, but they are processed centrally and at the end of each month computer-printed customer statements, trial balance, income statement and bala n c e-sheet, creditors’ cheques, expense analysis and sales reports are sent out. Some of the software developed for the computer network has interested other international branches of International Harvester.

The firm has found the network to be a flexible and economic communication link: it has the advantage over toll calls of being cheaper and of providing hard (printed) copy for sender and receiver; and it has proved simpler and quicker than l elex. The problem for International Harvester has been the success of the system. It is close to processing capacity on its present, computer, which requires modification or replacement if further dealers are to be added to the network. But the 40 per cent tax will add more than .$40,000 to modification cost and more than

$lOO,OOO to the price of a replacement central-pro-cessing unit. The sales tax also affects dealers. Ihe cost of a screen and a printer to a dealer is about $ll,OOO, with just on $5OOO in tax. So the tax. which an international firm such as International Harvester must find difficult to “sell” to its free-enterprise parent firm in Chicago, can be fairly said to be hindering a development which would allow more efficient use of capital (parts inventory) and labour (accounts ' staff in dealers still not on the network). In this case it is fairly clear that it is hindering increased productivity.