New Zealand First will campaign on cutting the company tax rate to 20% for businesses with annual turnover below $30 million.

The party announced the policy today, proposing to reduce the rate from the current 28% paid by most New Zealand companies. Inland Revenue confirms most companies currently pay income tax at 28%.

Under the proposal, companies with turnover below the $30 million threshold would qualify for the lower 20% rate.

New Zealand First said the change was designed to leave businesses with more money to reinvest, reduce reliance on bank debt and encourage investment, expansion and employment.

The party estimates the tax cut would initially reduce government revenue by about $1 billion a year.

It argues the cost would be recovered over the medium term through increased business activity, employment and consumer spending. That is a projection from New Zealand First and cannot be confirmed from the information released with the announcement.

The party said lowering company tax could encourage investment by reducing the amount of company profit going to tax and leaving businesses with additional capital.

New Zealand First pointed to Australia as an example of a country operating different company tax rates depending on the type and size of a business.

The Australian Taxation Office says companies qualifying as base rate entities are taxed at 25%, compared with 30% for other companies. Eligibility includes having aggregated turnover below A$50 million and meeting rules governing passive income.

New Zealand First said its policy was intended to shift the focus from short term consumer stimulus towards investment in businesses and productivity.

The proposal would represent an 8 percentage point reduction from New Zealand’s existing 28% company tax rate for qualifying businesses.