The imposition of fringe benefit tax (FBT) on corporate entertainment is one of the great travesties of New Zealand business. Okay, so I am an adman from way back, but I contend this is a punitive tax of doubtful value, indeed a tax that has arguably slowed down economic development.
FBT seems to be predicated on the notion that corporate hosting is a ‘perk’. Labelling it as ‘entertainment’ somehow defines it as an enjoyable indulgence outside the normal course of business – and therefore taxable.
Corporate entertainment is a vital part of commercial activity, every bit as important in the conduct of business as auditing or workflow planning. The proof that its imposition has slowed our nation’s economic progress can be seen from the fact that we have seen our once great country slip inexorably back from fifth to twentieth in OECD per capita GDP rankings. We are now on economic parity with Spain. Coincidence, you say? I argue otherwise.
The tax was initiated by the IRD about 30 years ago, under the watch of an accountant-cum-politician. I can only assume its proponents often missed out on invitations to lunch or dinner and, out of spite, thought, “If they’re having fun, we’ll tax them.”
As far as I can ascertain, the thinking behind the tax was that certain employees were gaining a pleasurable benefit that wasn’t available to all. Perhaps those who proposed the tax hadn’t tried to form a relationship with a difficult client, let alone a foreign one?
I once checked with a former cabinet minister, who told me that the Government doesn’t pay fringe benefit tax on state banquets. Why not? Surely politicians and bureaucrats hosting foreign dignitaries is simply the public sector equivalent of corporate executive get–togethers? One of the keys to doing business is getting to know your associates and customers, be they political or commercial. The gestation of many great advances in human civilisation have occurred over breaking bread. The Christian Church, for example, was founded on a supper.
Some years ago, a mate of mine was creative director of a Sydney advertising agency. He had the idea of sticking a pin in a map of the city on the office wall to indicate where good ideas had been conceived. Not just any idea, but ideas that got made into award winning ads. Of the hundreds of pins, only a small fraction indicated their provenance had been in the office.
Instead, many ideas had been conceived in a nearby Italian restaurant, others on the freeway, some at home in the shower. Yet more were dreamed up right off the map, at 30,000ft in planes, or on beaches far away. Almost universally, the ideas came in places where their originators were relaxed, not under pressure in the office.
In my experience, good ideas are never fostered by executive edict or in a corporate strategic meeting. In fact, I’ve never seen a good idea come out of a formal planning process. Edict and corporate planning are for implementation, not for origination.
This reinforces my central theme: ideas come as the result of individuals absorbing lots of information, enabling that knowledge to gestate, then allowing connections to come to mind more or less at random at a more propitious time – like at lunch – when the brain is freewheeling. It’s on these occasions that relationships of trust are built and we allow ourselves to question conventional wisdom. Relaxing and poking fun tends to get the creative juices flowing. By questioning accepted ways of behaving we can facilitate change.
We are more likely to break boundaries when we poke fun at problems. Pushing the envelope opens up our minds; we can take risks. By letting our minds run free we get more and more juice (not to mention experience) that we can tap into creatively. If not, the status quo will remain.
Meanwhile, politicians and financiers, following conventional practice, have driven the world into economic uncertainty – sitting on an unstable mountain of debt.
Perhaps if they had spent more time at lunch they would have developed better ideas and learned a thing or two about human behaviour on the way.