Brian Fallow talks to The Opportunities Party's leader Gareth Morgan about his policies and where his votes might come from

By Brian Fallow*

There is a political leader Gareth Morgan wants to knock off his perch. It is Winston Peters. 

Speaking to Victoria University students recently he asked them who they would rather see hold the balance of power: the most regressive politician in New Zealand or himself with his fresh, radical (but evidence-based) ideas? 

“We have to be able to work with whoever is forming the government,” he told me later. “That is the fatal flaw of the Greens. They are environmentalists but when they rule out working with National that means we only get environmental policy getting any sort of a say 50% of the time. I don’t understand it.” 

So where would he see the Opportunities Party’s votes coming from? 

“It will come from New Zealanders who care, beyond themselves and their immediate family. Who care about the future of the country and also about those who are disenfranchised now.” 

How’s that for a politician’s answer? 

But he goes on, citing market research he has commissioned: Those people are to be found across the political spectrum. It is conceited of the political left to think is an exclusively left-leaning mindset. “And it is also across age groups, which has been a real eye-opener. I have done a few gigs at retirement villages and I would expect them to basically fall off their walkers when I talk about the rationalisation of New Zealand Super but actually they don’t. Their number one concern is their grandkids.”  

That said, “there is no doubt our support is strongest among the young.” 

'I can cut income tax by a third'

Metrics like GDP and even GDP per capita might be fine at the moment. “But look at the statistics on inequality, the stubborn-ness of poverty and you will see not all boats are rising. And look at the disenchantment with democracy as measured in election turnouts, especially when you break it down by age. You have got a lot of disenfranchisement there,” Morgan says. 

The party’s flagship policy is to overhaul the tax system so that it taxes all forms of capital income as it accrues, and to apply the fiscal fruits of that broadening of the tax base to lowering rates. “When I do those sums I get $11 billion out of that and that is a third of the [individual] income tax take, so I can cut income tax by a third.” 

He would tax either the market return to capital or a deemed return whichever was greater, including the imputed rents owner-occupiers derive. For cash-strapped elderly homeowners the liability could be rolled up in a mortgage held by the Inland Revenue to be cleared when they die or sell. 

Morgan sees the policy as making the tax system not only fairer but more efficient, inasmuch as it reduces the tax advantages in investing in property rather than productive enterprise. 

That capital efficiency argument is his response to one objection to the policy of means testing half of New Zealand Superannuation. Doing so inevitably creates a zone of high effective marginal tax rates applying to the income superannuitants derive from private savings. When super is already taxable and the tax treatment of saving through managed funds is already discouraging enough, surely those high EMTRs would be negative for saving, investment and capital deepening? 

“The [current] tax regime is driving where those savings are invested in a way which is really bad for the economy,’’ he says. And under his plan income tax rates would be lower. 

'We have got to get rid of some of these liabilities, of which NZ super is the biggie'

The Opportunities Party’s policy is to split New Zealand Superannuation into a universal entitlement of $10,000 and means test the rest of it. It would also drop indexation to the average wage. The fiscal savings would enable a universal payment of $200 a week to families while they have one or more children under three years old. 

Morgan is a fan of universal basic income (UBI) but with an economist’s respect for the laws of arithmetic has to recognise that the closer you move to universality the more basic the income is liable to be. “We will never get rid of targeting but there is just so much of it now and we can roll it back,’’ he says. 

“But we have got to get rid of some of these liabilities, of which New Zealand super is the biggie.” 

The party’s families package would also broaden Working for Families (WfF) with a payment to lower-income families with children under 17 based on an income and wealth test, but not a work test. “We don’t like the punitive conditions that eligibility to the in-work tax credit requires. It is an awful intrusion with perverse behavioural incentives.” 

Fundamentally, though, Morgan regards WfF as evidence of market failure in the labour market, which allows some employers to get away with paying less than people need to raise a family on.

“It is basically an acknowledgement that the labour market is not paying a certain sector of our society enough to live. We hide that with Working for Families rather than let wages rise. That is the start of the rot, to me, because the economy is not performing and you are masking it through the welfare system.” 

'Volume approach increases gap between the haves and the have-nots'

Similarly he argues that the policy of allowing lower-skilled migrants to “pour in” has prevented wages from rising in response to bottlenecks – “it might be dairy workers in Southland or waiters in Queenstown or whatever”. 

Propping up businesses whose sustainability depends on not paying proper wages Morgan sees as part of a flawed strategy that is focused just on increasing the size of the economy.

“Whether it is the volume of migrants, the volume of cows, the volume of crap in the streams or the carbon footprint, that whole volume approach has this consequence of an increasing gap between the haves and the have-nots, and we are going to mask the have-nots by giving them welfare even though they are in work.” 

Morgan portrays himself more as a policy wonk than a politician. 

“We have done a whole lot of stuff at the Morgan Foundation, since I stopped making money, on different policy issues and I am essentially a voice in a way for the frustration of the policy advisory community which tries to put forward best practice policy using all the evidence base to politicians, only to see them introduce policies in some cases barely recognisable from those recommended to them,’’ he says. 

“There has always been a gap you could put down to political pragmatism. You have got to have a bit of respect for that. But I think that has morphed now into political expediency where politicians are serving interest groups rather than all the people of New Zealand. So we are seeing increased alienation.” 

Similar alienation is evident elsewhere. First the Americans and then the French have elected presidents who have never held elected office before. Paleo-socialists like Bernie Sanders and Jeremy Corbyn have also defied pollsters’ and pundits’ confident predictions. What all four have in common is that they are seen as outsiders, a departure from politics as usual. 

Whether Gareth Morgan benefits from something similar here only time, as they say, will tell.


*Brian Fallow is a former long serving economics editor at The NZ Herald. This is the latest article in an election year issues-based analytical series on economic policies he's writing for interest.co.nz.

His first article is here. 
His second article is here. 
His third article is here.
His fourth article is here.
His fifth article is here.
His sixth article is here.

His seventh article is here.
His eighth article is here.


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189 Comments

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Wow , just read how he want to do this .

I am not willing or able to be taxed on the savings and forgone consumption I made to pay off my mortgage .

Its just ludicrous , we have scrimped and saved and gone without to be debt free , and now he wants to tax the "deemed benefit" of being debt free .

....'deemed benfit' . Nope..a real tax free benefit to you,none to renters.

Last I checked renters don't pay a renters tax. So no, I do not enjoy a benefit they don't.

Okay, let's spell this concept out to you.
I do it so often, what's another comment.

House owner buys house.
House increases in value/receives net positive economic benefit.
House owner pays no tax on investment.

Renter invests money in non property asset class.
Renter receives dividends/income from investment.
Renter pays tax on that economic benefit.

Thus, given the same investment of $1000 and the same rate of appreciation.
- Property owner pays zero tax.
- Renter will pay a non zero amount of tax.

Simple now?

"House owner buys house.
House increases in value/receives net positive economic benefit.
House owner pays no tax on investment."

By that logic, every second hand good in the country should be taxable.

"Renter invests money in non property asset class.
Renter receives dividends/income from investment.
Renter pays tax on that economic benefit."

a)Who said the renter invests?
b)Wouldn't owning a non dividend paying share be the same as owning a house?
c)What about "investing" in Art, Classic Cars, gold bullion, diamonds, etc...

Learn economics properly.
You are comparing luxury goods to necessity goods. Thats a dumb comparison.
A really really really really really dumb comparison.

You can't live in a rented diamond.

Hang on - so are you saying that it is ok to tax necessity goods but not luxury? That makes absolutely no sense.

Taxing necessity good (food) and not Luxury goods (+$2m McMansions) is what we are doing now!!!!!

Does no one here understand how this works???!?!?!?!?!?!?!

Shelter = necessity, or did you miss that.

Maybe you could show me where his policy explicitly targets "+$2m McMansions"?

Noncents, I see you are still taking heat from people who think you do not understand, when it is actually the other way round.

@Noncents. Don't feel bad, apparently you're not alone in skipping Econ 101 at uni.

FYI - I did both 100 and 200 level econ papers - passed them all easily.

I understand Economics just fine. I just don't find it applicable to the real world.

ECON 101 - High Demand at a High Price = shortage of supply.

Of course depending who you ask some would say we have a demand issue?

But hey, what would I know, right?

The whole point is exactly that we have demand AND supply issues. But you're getting there =).

I think we are making progress. C+

As much as we're all enjoying the debate, it's all academic anyway, because there's an almost zero probability of Gareth et el reaching 5% threshold. Ask the boys at his old company Infometrics, they'll tell you.

We want them to get 4.9% of the far left vote

I am used to it ;-) I find most people only have average or below intelligence. When they don't understand something they lash out.

I find that half the people have below average intelligence.

+$2m dollar McMansions isn't shelter! What part of this do you not get!

His policy doesn't differentiate - what part of this do you not get!!!!!!!!

Not differentiating is the whole point!

By not differentiating, you take away the tax benefit on McMansions. -C two steps forward one step back.

A tax on the gain in value of the house to a house owner would be a capital gains tax. However, that is not what TOP is suggesting. It is proposing an equity tax whereby a deemed rate of return is applied to the equity a person has in property (house, shares art whatever). Accordingly, tax would be payable even if the house's value stayed the same or even decreased.

You may want to amend your standard answer as you are missing the point.

No need to amend.
RE: "net positive economic benefit" is a catchall for that - what the tax is based on.

Deemed value?
I guess all home owners will become incentivized to sell the house into a family trust at a heavily reduced price? Or contest revaluations? Or run maintenance to a minimum or not improve?
Unintended consequences......

Nymad, in your example:
One person buys property. The rent from the property is income and is taxed.
Another person invest in non property asset class. The dividends/interest from the investment are taxed.
Neither are taxed on the capital, or any capital gain, unless they are trading. They fall under the same rules.
There is no difference.

All this does is to introduce a wealth/capital tax.

Where I see that this is unfair, is that it includes all capital, regardless of whether the capital is personal or business in nature. I think it is unfair to tax the capital in a person's home (personal asset), when they are not earning any actual income from it.

Obviously you disagree, and think that a wealth tax is a good thing. That is fine. But please refrain from condescending, and making out that people don't understand.

As above, I do understand the tax policy, but I think it is unfair.

Ill try again.

I have $500k in the bank and I rent a house worth $500k. For simplicity lets say the rent and gross interest is the same.

My interest does not cover my rent as it is taxed at 33%.

Altenatively, I own the home instead. I have swapped my interest income for a home of which i pay no rent but get a value of the same amount as the bank deposit.

So the home owner is better off by the tax diference - 33% tax free benefit.

Extrapolate thiss down to a rentier saving for a depositt..same disadvantage to him.

Get it?

Good example.

Hi Rastus,
Firstly, it would be great to have a reasonable debate about this issue without the condescension. Do people come onto this site to vent their anger? I assure you I do "get it".

Secondly, I agree with Kate. This is a good example, but also one that takes a very specific situation and makes it sound as if there is an anomaly, whereas I disagree that one exists.

In your first scenario, tax is paid by the house owner, and also by the person with the bank deposit earning interest. There is no difference as they are both business assets.

The problem is that you are comparing a personal asset with a financial/ business asset. You have to be able to separate that out in my opinion.

In your second scenario, you now own a personal asset as opposed to a financial asset. You also could have used that $500k to buy a boat, or a really flash car. None of these personal assets earns an income, and therefore attracts no tax.

The tax policy seeks to bring in a capital/wealth tax, on top of an income tax, so that regardless of whether an asset is earning income, it is taxed.
It therefore limits your freedom to choose a personal asset over a financial asset. You might really want that boat, but now you will be taxed on it, you are forced into using that money to buy an asset that generates a return.

To summarise, this is a capital/wealth tax. I don't want that.

You cannot 'get it' as you are still paddling irrelevant nonsense. If you dont want the playing field levelled, then fair enough. Just say so.

The asset is earning income - just not taxable income under current rules. Condescending ... nope exasperated by financial illiteracy - yes.

Way to debate the points Rastus, you financial wizard.

What points?
He categorically addressed them.
I don't think he could have made it simpler, if he tried.

He, like so many here, get frustrated when people just argue for the sake of it.
Commentators like you keep coming up with arbitrary examples that detract from the real point and substitute their own logic for widely known economic or financial principles.

Everyone is entitled to their opinion, naturally, but you fail to realise that logic needs to enter it somewhere if you want to debate people that, evidently, have a lot more knowledge on the subject than yourself.

The points made above. I don't want to cut and paste. He didn't address any of it, evidently.
Rather, he passed it all off as irrelevant.
Perhaps you could address my post in a more analytical way and suggest where logic has failed me?

"In your first scenario, tax is paid by the house owner, and also by the person with the bank deposit earning interest. There is no difference as they are both business assets."

What tax is the houseowner paying on the asset?
How is the personal asset now a business asset?

"In your second scenario, you now own a personal asset as opposed to a financial asset. You also could have used that $500k to buy a boat, or a really flash car. None of these personal assets earns an income, and therefore attracts no tax."

Sure they do, otherwise why would you buy them if they provided no economic benefit?
If we assume the same case as Rastus mentioned.
You buy the asset, it must provide you with an economic benefit at least equal to that of investing the money. This is the idea of utility.
However, you pay no tax on that benefit.
So, the net economic benefit for the asset purchaser is the full utility derived from the asset purchased. For the person who invested the money, the net economic benefit is the return minus some marginal tax amount.

I seriously don't know how simpler you can put it.

"What tax is the houseowner paying on the asset?
How is the personal asset now a business asset?"
This is a rental property. Read the first scenario again Mr Logic. He is renting a house, therefore the property owner owns a business asset, and the income (rent) is being taxed, in the same way as the interest from bank deposits is being taxed.

"Sure they do, otherwise why would you buy them if they provided no economic benefit?"
You confuse personal benefit with income. Personal assets like a boat do not earn an income. By saying "sure they do", you evidently have flawed logic, or misunderstand the word "income".

Thanks for sharing your "widely known economic or financial principles", and outstanding logic.

But 2/3rds of all rental properties in NZ according to IRD are making losses, not profits, and therefore those business asset owners do not pay tax on the rental income... even worse, the losses made on those assets can be written off against tax paid on other income sources. Hence, a double whammy for the state/government from a revenue perspective. Effectively, owning a loss making rental lowers your income tax, whilst providing you with an asset likely to make tax-free capital gains.

This issue I believe is being addressed in Labour policy to ring-fence these losses (i.e., not allow any income tax write off for tax paid via other income sources).

Correct, but separate issue. That can be dealt with (if you want) by other means, like ring fencing the losses, and also other measures like not allowing depreciation to be deducted like National has already done.
The fact remains, that the profit is taxed in exactly the same way as the interest from a bank deposit.

This is not a reason (on its own) to introduce a capital tax.

This is not a reason (on its own) to introduce a capital tax.

True, but it is a reason on its own to own a loss making rental property :-)!

...and there are ways of dealing with that if deemed a problem, without a capital tax.

Again, that doesn't make sense though.
You are just confusing yourself in your misunderstanding.
We are talking about a homeowner. The homeowner is not operating a rental business. They have invested money in a house, derived some economic benefit from that and not paid tax on that benefit.
We are assuming the renter made an investment of equal value (non housing) that returns a monetary income and is taxed.
Utility of both decisions is assumed to be equal (which it should converge to).

You don't understand at all what you are talking about if you are still interpreting this policy as taxing 'zero monetary income'. The tax is on economic utility/benefit - something you receive regardless of you investment decision, with an equivalency to some amount of 'money'.

I said this to noncents the other day - read an elementary level microeconomics text, and come back and debate when you understand the concept of which you are supposed to be debating on.

Nymad, we talked about having a logical discussion. So we based this discussion on the example that Rastus gave us. In his first scenario, he presented us one person who rents a property, and also has $500k in the bank. In this scenario, the house owner is renting out his property. This rent is subject to tax.

By saying "The homeowner is not operating a rental business," you once again betray your lack of logic.

Okay you misunderstand Rastus' example, completely.
That's fine.

The fundamental issue he was exposing was that the renter invests the money and is liable for tax. We assume the return is nominally the same as his rent, for simplicity. Because, well, lets face it, this example has confused the hell out of you.
Except.... due to tax, he cannot pay that rent.
Homeowner invests money in house to live in and is not liable for tax. But... Homeowner receives an economic benefit equal to that of the renter but at a lower cost due to not paying tax.

Dooooo you understand, now?

Come on Nymad, fire up that logic of yours.
The scenario is: "I have $500k in the bank and I rent a house worth $500k".

I said: "In your first scenario, tax is paid by the house owner, and also by the person with the bank deposit earning interest. There is no difference as they are both business assets."

Then you said: "What tax is the houseowner paying on the asset?
How is the personal asset now a business asset?"

So I answered you with: "This is a rental property. ... He is renting a house, therefore the property owner owns a business asset, and the income (rent) is being taxed, in the same way as the interest from bank deposits is being taxed."

Can you see how logic works?

Maybe a business versus private services example may help.

I pay $800 a week to see Candy the local hooker, from that $800 she pays $100 in GST and $200 in income tax (i.e. $300 tax paid). Candy is an honest taxpayer.

I subsequently find the girl of my dreams and marry her. On our wedding night I am just about to do the deed when the tax man jumps out of the wardrobe and shouts "$300 a pop mate"!

Ha ha, brilliant.
Yes, you should be paying tax on the benefit of having your wife for such deeds.

Furthermore, Candy should pay tax on her intellectual capital. Candy went to hooker school, which set her back $100k. It was worth it though, because she is now in high demand from the likes of HeavyG, and she is earning well.
Whereas poor old Rastus didn't go to hooker school, and with a lack of skills, HeavyG wouldn't go there with a barge pole. Instead, Rastus put his $100k into a bank deposit, and he is being taxed on the interest! How unfair is that!

And don't forget Pl Goff's "bed tax' , which maybe exempt if said bed is used for a taxable activity. :-)

It's a modern world. Both HeavyG and the missus are gaining a mutual benefit. Both should be taxed. As busy busy newly weds and at $600 a pop they will never get to be FHBs

Unfortunately I am hung like a mouse, no benefit for the missus I’m afraid.

What would wise Nymad think of the economics of this activity.

Maybe we first start with taxing the equity in cellphones, then move to cars, followed by the deemed income earning potential of individuals, before we finally get to equity in houses? That way we have a chance to see how the policy works on a smaller scale before the big hit.

There is a massive benefit to being debt free. Compared to a family renting, that has never had the opportunity to save and build up a deposit (which is going to be more and more important going forward), you have free accommodation while they are paying rent out of post tax income. But you never know, you may be better off still given the tax cuts. If you own a 500k house outright, and tax is payable on the deemed return on that asset (say 5%), tax would be approx 8k a year (at 33%). If you are earning $140k a year, then your income tax bill would only need to drop by about 25% for this to be tax neutral for you (which the above article suggests is possible).

I dont think this is the best way of doing it, a straight land tax would be better, but i do think that this would make NZ a better place going forward. You might not be better off Boatman, but i bet you wouldnt be worse off by much. It will sting the massive land bankers and asset holders way more, and assist to prioritise assets more efficiently across the economy

You're going to get it back in lower income taxes, and you're actually only being taxed on the benefit provided to you by the city around you. There's no automatic reason everything should be foisted on one's income...that's just a notion like any other, and likely implemented and of course preferred by those who have the ability to disguise income.

Quite why people should be receiving hundreds of thousands of dollars in wealth without being taxed on it while workers have to shoulder the burden of taxes disproportionately is, well, it's not a mystery, but it is a bit unbalanced.

I was born in the 90s. I would only vote for this guy if he could guarantee the deductibility of interest paid to foreign trusts as a business expense angainst anything that he wants to tax (wealth, income, etc) & ensure that there is no limit to how much debt you can acquire so long as both the borrower and lender agree.

I am liking these policies. If you are not a selfish person you would agree as well - these policies will benefit NZ. I am a property investor and this will affect me negatively but its for the greater good. If we dont change the tax system, next year I would have earned more by doing nothing and getting tax benefits than the guy working as police officer doing a 40 hour week. We are encouraging the wrong investments and this is causing and unfair gap in NZ. 15 years ago we could not see this gap but of recent it is very easy to see the haves and have nots, if we do nothing in the years to come the rich are going to be richer and the poor on benefits which we wont be able to sustain. There will be a whole heap of people who will complain about taxing their home, well if we dont fix this taxation problem now our kids will be left with nothing but that house. They might not have jobs or be able to buy their own homes but atleast they will have the tax free home their parents leave them:)

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Prima facie under these policies if boy and girl each earn $1,000 but boy spends his on travel while girl saves hers to eventually buy a house, then girl will be deemed as having more benefit than boy from her $1,000 and as such will need to be taxed on her savings?

This begs the question: why ever save?

No, it begs the question: Why would you vote for them?

What?
Girl is not taxed on her savings, whatsoever.
She is taxed on any economic benefit generated from/above those savings.

Your analogy should read:
Boy has $1000 and chooses to consume - pays an effective rate of ad valorem tax.
Girl chooses to buy house - pays no tax.
House appreciates in value (derives economic benefit from house), girl pays no tax.

That might help you understand it better.

Girl buys house and keeps it until she dies.

She never sells it, rents it, or otherwise earns an income from it.

She pays a huge mortgage for 30 of those years. Her weekly payments are double those of a renter. The interest is all taxed.

She creates employment for sparkies, plumbers, builders, and landscapers. She purchases goods and services relating to her house. She pays rates, insurance, maintenance, repairs, consumable goods, she fills her house with stuff. She has a family, and some pets - she consumes more as a result. All of these things incur tax of some sort, most incur double taxes (GST from her and income tax on the provider)

So why are we taxing her house?

A second girl builds a new house, she pays GST on everything in the build.
Her first year she then gets taxed.
Like the first girl she lives in that house until she dies.
She paid tax to move in, then pays three taxes (income tax, GST, and House tax) for the rest of her life.

How is that fair?

The renter on the other hand pays rent (it is not taxed), the landlord does not pay any tax either as he deliberately negatively gears his house.

The renter saves up his millions and buys a Van Gogh at auction - it incurs ZERO taxes. He proudly displays that Van Gogh on his bedroom wall of what ever house he rents, never gaining a cent from his ownership of it. He eventually dies happily aged 98 looking at his beloved picture.

Why isn't he taxed?

Swap Van Gogh for classic cars, gold bullion, antique furniture, etc... in fact anything bought secondhand.

Still no tax? No advancement of the economy, nothing. He offers zero utility except to the landlord (who doesn't pay tax)

How is that fair?

A second hand house is not taxed, because the tax (GST has already been paid). It is no different to any other second hand item in this country. Or has everyone forgot about that.

I may not like GCT but I understand it.
GM could have added a CGT, that would make infinitely more sense.
Hell he even could have added GST to a house purchase (AKA Stamp duty)
He even could have said it only applies to landlords, businesses - in fact anything other than the family home.

But no, he creates the stupidest, most ineffective tax known. What does he think will happen?

House prices wont drop - no tax has ever seen a price reduction. A taxes job is to reduce demand so that short supply can meet it.
Landlords will pass on the tax - so rents increase.
Homeowners either switch to renting, or turn into property barons to recoup costs.
Every single person that is of pension age or over, now requires more money (or are they exempt? get extra pension to cover it?)
Housing NZ now has to pay million/billions more in tax - or are they exempt?

Maybe GMs end game is to all have us rent of the government?

Actually don't worry, this clown is never getting in.

If he does I simply set up as a Tax Free charitable trust that provides housing to the disadvantaged free of cost - My Freehold mortgage free house becomes part of that trust. I now have no house so am in need of accommodation - woohoo! all sorted!

I just have to laugh at your comments sometimes.

All you are doing is showing you don't understand the policy, current tax policy, or the property market.
Case in point.
"She pays a huge mortgage for 30 of those years. Her weekly payments are double those of a renter. The interest is all taxed."
I don't know any case where mortgage payments on a 30 year are double those of rent payments.
The interest is all taxed? How exactly is the interest taxed? The government taxes you for negative cashflows, now? Interesting..

Nymad, give me a break, you will have to do better than that.

1. Interest is taxed. It is income for the Bank. Income is taxed.
2.a)I guarantee the rental in Patea is 1/100th, maybe even 1/1000th of the mortgage in DGZ Auckland. Last I checked TOPs policy was nationwide.
2. b)That homeowner that bought the leaky home, and has now had to borrow more to fix it up. Guarantee they are paying double or more than a renter.

You are advocating taxing an unrealised gain.

Maybe we could all value your house at $50 Million Billion Trillion. Now you pay tax on that. Your house might not actually be worth that much, but hey you must be benefiting from it.

1 - How does the house owner pay this, though? It's not really seperable, given that the bank pays tax on total profits, not piecemeal. Thus, it is pretty stupid to say attribute it as a cost to the borrower.
2a - The rental in Patea's purchase price is likely $150k. Using the handy interest.co.nz mortgage calculator shows this to be ~$600 per month on standard terms. $600 per month is not double what you would pay in rent for that house. Even if you factored another 25% for ongoing maintenence, it doesn't justify your claim.
2b - That homeowner is an idiot for not buying at a fair rate, then. Obviously they didn't price the asset correctly. Don't expect to socialise your own poor purchasing decisions.

"Maybe we could all value your house at $50 Million Billion Trillion. Now you pay tax on that. Your house might not actually be worth that much, but hey you must be benefiting from it."
Again, you don't understand the logic.

Nymad, I don't think you understand the logic. You are advocating a CGT that is paid in advance. Think about that for a second, and the implications it has for every other good in every other market.

There is absolutely ZERO economic benefit until it is realised. i.e. the house has to be sold, or leveraged in some form.

What benefit does anyone derive from their house increasing in value $50k, if they just keep living in it?

No I'm not.
I'm advocating it period on period.

It's simple.
If assessed value in period t > assessed (or actual value) in period t-1, tax is payable on that gain.
Even if value t < value t-1, there is positive utility derived from the investment.
In net terms, the policy impact will be benign for the majority of people.

What benefit does anyone derive from their house increasing in value $50k, if they just keep living in it?
They increase their wealth position and derive utility from the investment, tax free. That's the point.

"Even if value t < value t-1, there is positive utility derived from the investment."

So you are now taxing losses? OMG!

No, you're taxing equity.
You assume that there is a specific amount of utility derived from the equity held in the asset.
I everyone derives the same level of utility from the asset, nominal cash profit/loss is inconsequential...

In that case wouldn't a renter, squatter, tourist, derive the same utility from a house as a homeowner?

He is advocating taxing after-tax income spent in a way he doesn't like, as it should go into something he views as more "productive".

This is an entirely subjective matter, and something a politician has no right to decide.

Should add,

Look at the current market. What happens when it drops? Tax refund - no? didn't think so.

Take Remuera home worth 1.6 million that rents for $950 per week. The loan payments at 6% over 30 years are in fact more than double coming to $2,212 per week. In fact the interest itself is about double at $1,846 per week in the first year.

That said interest isnt taxed regardless of the argument that it is the income of the bank.

As much as I agree with taxing capital gain his policy effectively turns us all back in to serfs with the government been the aristocracy. If this policy where enacted you could no longer 'own' anything, we would all be renters. A home is not an investment, it a personal asset. If it is sold and the gain is realized as capital that is then not used to buy a home, then that should be a taxable gain but nothing further.

I think you hit the nail on the head Laminar. This is why TOP push the idea that young people have given up on democracy so much. So that they will buy into the idea of government as aristocracy.

I can see the you tube history video now.

Narrator saying "After a 3 year reign King Gareth was finally forced to sign a "Magna Carta" ceding power back to the people." all while "history never repeats" satirically plays in the background.

Or something close to Communism which GM might be deriving his theories from ... I am happy if he gets some support among some ill informed voters who might otherwise vote for the Greens or Labour ... No one can trust the Government of the day with their money .. we did that with the petrol funds, AAC funds, and other infrastructure funds over the last 30 years ... we were taxed and paid for rail projects,Motorways, and a second Auckland harbour passing - None of that happened and the Money Was Gone
GM could never guarantee where the tax money will Go - he will not be in power then !!

Well interest is the only relevant factor, paying principal is not a cost. And while the rent may be more than the interest payments on day one, it probably won't be in ten years time.

yeah dont think you have got your head around this.. if the girl is saving in a bank account and already paying tax on that, then they will not pay anymore tax as it is already being captured.

You already pay tax on rental income. Is morgan proposing a capital gains tax?

Not if you make a loss - and I read somewhere from IRD that more than 2/3rds of all residential RE businesses are making losses - and of course these losses can be claimed against tax paid on other income - so collecting no tax on profits and less income tax as well. Something's gotta change.

At the moment, if she invests that $1000 in a savings account she is taxed on the income. If it turns into $1000 of housing equity, she isn't taxed. So in fact, using your simple arguments, the current system discourages saving and encourages housing investment. Does that benefit the country?

Wouldn't she be charged a tax on the capital? Isn't Morgan's thing the comprehensive capital tax?

So Girl is taxed on the equity in housing but not the equity in savings? Even though income from both (interest & rents) are taxed? Capital appreciation on houses are already taxed at marginal tax rates whilst ( capital appreciation on cash (deflation) isn't taxed.

If the house girl buys drops in value such that girl has negative equity does she pay negative tax?

The policy does

allow those businesses facing a temporary or cyclical earnings downturn to defer their minimum income tax for a period of up this to 3 years (use of money interest to be charged);

But I'm not sure that was what you were asking.

https://d3n8a8pro7vhmx.cloudfront.net/garethmorgan/pages/95/attachments/...

In current NZ: We are talking about being asset rich not savings! Girl who bought the house and can use the tax free equity generated and buy another house and in a few years another house and so on. No tax on the equity over the years - Banks will see the asset rich girl and give her more cash to go for 100 more holidays, girl then has a kid and the kid gets a silver spoon life style, then a grand child comes along, and Girl can now retire because she has enough equity to live risk free while the assets are just accumulating wealth while providing nothing to the NZ economy as it generates no jobs or income tax for the rest of NZ while....
In current NZ: Boy gets nothing because he consumed his $1000 and now working 50hrs per week in his 50's just to make ends meet and probably paying more tax than the girl who is retired spending quality time with her grandkids tax free.

The problem is that the Girls assets will appreciate in value over the generations and not actually providing anything to the NZ work force. Asset rich people are untaxed yet savers, stocks, businesses are all taxed.

I have one question for Gareth. Can he make up a single policy that doesn't involve taxing me?

Are you a cat?

He's a real vote winner isn't he?

I'll kill your cat then tax you for the privilege.

Yep, this one;

http://www.top.org.nz/top8

Provided you're prepared to grow your own.

You would have to assume it would be regulated/taxed inline with Alcohol and Cigarettes?

After all he does say "Cannabis is a health issue and should be dealt with as such."

Yes, both price and excise applied would be regulated. But grow your own is both free AND tax free!

As far as I can grasp them I rather like TOP tax policies. They certainly won't do me good but they will help my kids and grandkids. I do worry that we will find new ways of fiddling our taxes to the detriment of NZ as a whole. For example who calculates 'wealth' and how can it be hidden - will there be a rush to sell houses and rent and then invest the cash from the house sale into something hard to track (such as lots of bets in foreign casinos)? The means test to half of my superannuation - will that dissuade me working after 65? The WFF payment to lower-income families with children under 17 based on an income and wealth test, but not a work test - will that lead to more marriage breakups and to passing savings on to friends?

The main effect will be to stop buying a house as an investment and make it purely a place to live in. This will kill Auckland house prices so once my million dollars house is worth a mere half or third of that my wealth will have disappeared so where will TOP get their income to pay their universal benefit?

"They certainly won't do me good but they will help my kids and grandkids. " - as you pointed out yourself - only if they are tax accountants or lawyers .

Agree

@Bob
Will it, they will be destined to be renters, as there would be zero benefit to them owning.

Isn't the whole point of this to make home ownership easier?

If house prices in Auckland were the same as Dunedin then my kids would be OK. Either they would be owning or they would be renting at lower rents.

Can you explain how a tax on a good lowers prices?

I think (at one stage) that tobacco companies lowered the price of their product when the government upped the excise tax on it.

Somehow I doubt that was the intended purpose of the tax.

But you asked for an example - and it actually has some merit as a comparison.

If you tax land, land prices will surely fall in response.

It's much the same as tobacco - if you're a smoker you can't avoid the excise tax (aside from quitting) - if your a land holder you can't avoid the tax (aside from selling).

True, but the price isn't dropping is it.

Lets say it did work, prices drop, therefore the tax take would drop. The govt would then need more revenue, so up goes the tax. It's a vicious cycle.

As I see it, it would create further inequality. As only those rich enough to pay the taxes on top of the purchase price would be able to afford it.

I liken it to the stamp duty in OZ. It tends to hit home owners the hardest. Investors/speculators simply factor it in to their profits and adjust accordingly.

Lets say it did work, prices drop, therefore the tax take would drop. The govt would then need more revenue, so up goes the tax. It's a vicious cycle.

Not necessarily. As the price of land dropped and people paid less land tax, they would have more disposable income and that would subsequently raise the amount of GST collected (assuming they spend it). And there will always be a sort of floor on land - as the saying goes - we aren't making any more of it.

But, yes, to what degree would the masses look toward not being land owners?

"If house prices in Auckland were the same as Dunedin then my kids would be OK" - if this could be achieved in isolation , with the rest of the economy continuing to function as it does - perhaps. But this is impossible - and certainly would not be the effect of TOP policies if implemented.

The oldies can take out a mortgage with the IRD to be paid off when they die. Fantastic.

What a vote winning idea that is.

Maybe if everyone was to start now with $1000 and proceed to play the game of life, then GM's policies may make sense. But some of us have been playing this game for many many years with existing rules, and we are now ahead not because of the rules but by the way we have worked hard, saved hard, and made considerable sacrifices in order to save a dollar here and a dollar there. We have done this and saved as we have, so that our futures may match the rules that politicians have forced upon us. It is extremely unfair for them to just change the rules at the eleventh hour.

Of course my net worth now is considerably different to my brother's, as he spent his life roaming the world, taking extended vacations and not saving a bean. Mine is made upon of earning made from living in tents whilst painting the inside of my house, going to the gym for a shower as house renovations meant I did not have one at home, growing and cooking my own food. Why should I be taxed more?

Current system - your brother can return and live in NZ getting a big accommodation allowance.

TOP system - your $1million house that you have saved for all your life (or at least that is what I did) will be taxed - so instead of rates about $4k it will be $4k plus $8k. This repeated for 25 years (assumes a long retirement and no inflation) will cost you $200k more - but if the house is still worth $1m you will die with a healthy inheritance to bequeath to your family.

So if you had saved this money in the bank, you would be OK with the bank announcing that it is now going to take 20%. Also where is a retiree going to get the extra $8k per year? Basically I would be being taxed on the time and energy of my effort - should of spent the lot on hookers and weed

where is a retiree going to get the extra $8k per year?

They can rack up a debt with IRD to be paid when the asset is sold.

Yep, right lets just cut out this step and make NZ a communist country. Some people have bludged their entire lives and not saved anything, hardly worked and others have worked hard paying tax all their working lives adding to the value of NZ. Guess we know who the fools are.

Point is however, in theory, if you worked hard and invested/accumulated all of your hard earned savings into residential real estate asset(s) - you haven't actually "add[ed] to the value of NZ" - as residential real estate has not been a productive asset; rather it has been an untaxed store of wealth.

Really, I guess I didn't really pay for the architect, builder, plumber, painter, electrician etc, plus GST on top of that just for my family home, plus working and paying PAYE on top of that, plus saving for my retirement - Yep give me all that money back. Really add value by taking the Dole and spending it on pokies and cigarettes, having six children by the age of 25 - But of course I can't go and change my life that I have lived, but some politician think it is OK to change the rules that people have been trying to adhere to.

Yep give me all that money back.

How ridiculous - are you saying you'd have rather lived on the dole all these years and accumulated nothing? Of course not.

Instead, you have acquired an asset as a result of all your effort - well done. When you die you can't take it with you and it (the house anyway) has principally enriched or added value to your own life and that of others who you have housed in it over the years.

Sure, you hired the the occasional tradesperson for maintenance and you paid the original folks involved in building it in the first place, but that 'added value' over the life of the asset (say 50-60 years) is nothing in comparison to the benefit you (and others who have lived with you) have enjoyed from it.

All the while, it (the property) gains in value over the rate of inflation to some degree.

I'm not defending the tax policy - just trying to point out to you that you have had benefit. And the point made by Gareth's tax proposal is that you haven't paid any tax on that benefit over the years. Moreover, if you are now retired, you collect a benefit on top of living in said property, still without having paid any tax on it. And if you die in it, your beneficiaries will still not pay any tax on it (under current tax settings).

These are his arguments, I assume, in favour of the tax.

I think the point is, why should you be penalised for accumulating something as a productive member of the economy?

Surely these "benefits" are the incentive/reward for being productive?

If you remove the benefits then why be productive?

Which is a very good argument for not taxing labour - and I totally agree on that score. So, tax land.

Tax it at a standard square meter value and you might have a point.

Yes, but I think there would need to be an urban vs rural differential - and perhaps even urban vs suburban vs periurban vs rural differentials - so say four categories.

Nah, one rule for all.

I am sure Gareth would agree that driving farmers to be more productive on less land is a good thing.

Interesting, we could become a lifestyle block nation :-).

Self sufficiency is the way of the future.

The current rules arent working - the fact that the younger generation cannot compete with asset rich people proves this. If we dont change it's going to get worse. Take a step back and think about 20 people in your family or friends - now look at what they can and cant do because they dont own a house... now think about the same for 4.5 million New Zealanders......Our kids/grandkids are going to get the brunt of this. YOU specifically will be happy with owning a house but all the generations to follow wont be able to, your kids and grand kids included

But you forget Iac, there are only two classess of people in New Zealand that matter. Boomers and immigrants.

"you haven't actually "add[ed] to the value of NZ"

You must have though, that's how you were able to buy the house in the first place.

He could improve his policy no end, by simply removing the family home from this.

I and most people I know did not buy our house as an investment, a store of wealth, or a tax dodge. We bought it to live in, raise a family, own some pets, for some stability and security.

To quote the castle "It’s not a house it’s a home"

He could improve his policy no end, by simply removing the family home from this.

Well, yes improve in the sense of making it more acceptable to the masses - however, then he wouldn't collect enough tax in order to provide the tax cuts on income that he proposes alongside the capital tax.

Last I checked, you need the masses on your side if you want to govern.

He's not contesting the election to govern, but rather to influence the quality of democratic deliberation across a range of topics.

You still need 5% or a seat to achieve that. He is unlikely to ever get into a governing coalition so would be a minor voice in an ineffective opposition.

Hard to say. Only time will tell!

Noncents - I think you sum it up nicely

How much tax is that retiree paying now?

Not quite sure what you are asking. If instead of having a house worth $1m for 25 years and paying $200k TOP wealth tax I put the $1m in the bank at 4% per annum with 1% going to the gov in income tax on interest at the end of 25 years I'd have $1m in the bank, have spent $750k and given the govt $250k in income tax on interest. Once you allow for renting then I'm guessing it is roughly the same.
At present everything persuades anyone with money to keep in in their house.

You also benefited from affordable housing made possible through the taxes and policies of previous generations. If things had been left otherwise, it's likely you wouldn't have your housing wealth now.

As a Kiwi, somehow I expected to be able to live in my own house, which I have been able to. As for "affordable" - well sometimes it has been and some other times it has been very much a struggle, I have not bludged off of our government, have paid for my own education and have been lucky not to need any public services like Hospitals, Police etc. I still have just my one home and have struggled to be mortgage free and have some retirement nest egg, why should I not live in my house and not realize any housing wealth? I could have lived my life very differently and now be a burden on the Government - If GM got in, I would feel like a fool for ever trying to get ahead

Whats the difference from being taxed on your income?

Why should I strive to earn more in salary if I am going to be taxed higher and higher rates?

Yes. Just imagine if Roger Douglas had got round to his very low flat tax - and just imagine if GST had been paid on all property purchases as well ever since that period. What a different NZ we'd have now.

My favourite counter-factual is if Muldoon hadn't scrapped the 1974 Superannuation scheme. One study in 2014 estimated there'd be $278 Billion in the scheme.by then, funding who knows what new companies and providing the vast majority of our Superannuation needs.

True. As I mentioned elsewhere, the Cullen Fund (also stopped in its tracks by a National Government) is NZ's biggest single taxpayer presently.

You need also to consider what actually happened to the money that would have gone into the scheme. How do you know it didn't create just as much value outside the scheme as it would have done in it?

The fact you accessed affordable housing means you benefitted from taxes past. Read into the history of housing in NZ.

This is the argument that says private property should be abolished - all of it is simply the fruits of taxes previous generations have paid.

This is the logical fallacy called 'slippery slope'.

Best TOP policy: Make polluters pay!
Currently NZ's biggest industries are on a collision course. We promote a clean green image, yet our biggest industries are polluting at a rate never seen before and increasing.
We need to make it economically beneficial to run a low pollution business, not the other way around.

"our biggest industries are polluting at a rate never seen before and increasing."

Citation please

He would tax either the market return to capital or a deemed return whichever was greater

Herein lies a problem - which is it to be? And where are these metrics readily available?

Has this tax system been tried anywhere else before?
How would it impact owners of multiple properties?

"How would it impact owners of multiple properties?"

They would increase the rent on all their properties.

Only if they need to in order to achieve the prescribed return on capital invested.

Exactly.
It essentially takes away the factoring of capital gain into the asset pricing formula.
So rents will be less volatile over the medium term.
Dependent on the incumbent level, rents may increase or decrease.

If they need too?

The tax would be all over the media, landlords could push it straight through without even blinking.

Not sure what you mean. I meant if they need to raise the rent in order to bring the yield to the minimum rate of return such that no tax would need to be paid on the asset. So, say that minimum rate of return is set at 6% - then if your net profit/yield is above 6% - as I understand it - you'd pay no capital tax, rather you would pay a tax on that income.

You are assuming Landlords would try and minimise them. But you have an open sign to the market that Landlord costs have gone up. So why not pass them on?

The renter pays the tax.

I imagine it could end up like council tax in the UK. Where that tax is just added as tenant cost - After all, why shouldn't they pay more for living in a nicer house/area?

But the landlord raising the rent to the level that he/she avoids the capital tax is doing just that - passing on the 'cost' to the tenant (i.e., the tenant pays extra so that the landlord doesn't have to pay the capital tax). In Gareth's world this is an equitable outcome for society, as the landlord is paying tax on the income earned from the tenancy which is returning greater than the deemed rate of return.

It wouldn't be equitable though. Rent has gone up, as have homeowners costs. All he has done is created a tax induced cost of living increase. Would wages then go up to compensate?

or would his income tax offset do it instead? If that is the case, surely all of this work for no real gain is the very definition of unproductive.

It's an interesting point - he's been very keen to try and present a tax alternative that is "tax neutral" - meaning raises no more tax. But I'd have thought we need a whole lot more tax going forward. His answer to the fact that he intends NOT to raise more overall tax - is that he intends to cut superannuation, and so that's why he doesn't need to collect more tax.

Has this tax system been tried anywhere else before?

According to Gareth in an article last year:

"The Netherlands is closest to a pure CCIT regime – it uses a combination of a wealth tax and an imputed rental tax. Assets are assumed to have a 4% return, which is taxed at 30%. There is a per asset minimum of c.$NZ40,000 but no overall net asset minimum (debt is not taken into account)."

http://www.interest.co.nz/property/81975/gareth-morgan-presents-fresh-ca...

So Landlords in Auckland would need to pay about $8000 per house they owned.

Totally unable to predict that - as the tax to pay all depends on the net profitability/yield on the asset and whatever the deemed rate of return or the market return on capital is (depending on which of these two metrics are chosen).

Can they not supply a made up scenario? Say a property that was neutral in that rent exactly covered expenses?

If rent exactly covers expenses, then the rate of return is 0%. And therefore, the rate of return would be under threshold and the tax would be applied to the asset at the deemed rate of return or the market return on capital - whichever is the greatest (according to the policy as I understand it, that is - and my understanding might well be wrong).

And that's why a simple land tax would be so much easier!

So something like a 30% tax on 4% of the value of the house?

Unfortunately, I don't think it's even that straightforward or easy because the tax is not calculated on the asset value per se, but rather the amount of capital held in the asset.

Oops, didn't see that I think you are still talking about the asset that has no mortgage - in which case your stab at a guess is as good as anyone's!

Kate, TOP's tax proposal is on the equity in your house.

Remember offshore investors already pay a deemed rate of return on their investment and have done for some years.

Why should an investment in a house be treated any differently. One of the most basic rules for any tax system is equal treatment for all.

Yes, I've heard that argument - but the point I'd ask is whether the present deemed rate of return on overseas income is a fair/good/equitable tax. Again, I keep coming back to taxing land as being the most fair/equitable and EASY as pie to administer tax.

apples and oranges .. Netherlands also has income tax deductions for any mortgage interest paid ( being phased out gradually ).
Wealth tax is causing substantial distortions there ( like the flight of retirees to other countries in the EU ). There is much political debate about abolishing the wealth tax ( or more likely it seems reducing the deemed rate of return fairly drastically ).

A few places ( Netherlands, some regions of Spain ) do have wealth taxes ( albeit at lower rates and with many exceptions , typically but not invariably the family home ). In all cases it mostly benefited tax professionals and not the treasury and caused pretty massive distortions ( like Belgian border regions populated mostly by wealthy Dutch retirees running away from the wealth tax ). Most countries doing this also have mortgage interest tax deductions - so in effect the tax systems are so different from what we have here as to make direct comparisons nigh impossible.

Which is why land value tax is preferred by economists because it creates less distortions.

A land value tax is a progressive tax, in that the heaviest tax burden would fall on the wealthiest. Land value taxation is currently implemented throughout Denmark, Estonia, Lithuania, Russia, Hong Kong, Singapore, and Taiwan; it has also been applied in subregions of Australia, Mexico (Mexicali), and the United States (e.g., Pennsylvania).

https://en.wikipedia.org/wiki/Land_value_tax

Some questions:

1.
I buy a house today for $1 Million
Prices drop 5% per year for the next 10 years.
In theory I am losing money
a) so would get a tax refund?
b) if not why not?

2.
The prices then start to increase again, and in another 10 years I sell for $999k (still $1k less than I originally paid), so in theory another 10 years of Tax rebates. I incur a $1k loss on the sale, but make say $20k on rebates.
a) Does this mean I have made money from this policy?
b) If so, is it taxed?

As I understand it (assuming you have no mortgage on your $1m property and you live in it):

1. No you wouldn't because this is a tax on accumulated capital - nothing to do with capital gains or losses. They matter not.

2. No you have not "made any money" from the policy - you paid capital tax based on the $1m of accumulated capital that you bought the house with - regardless of any gain/losses you might make over the period of ownership. And no, you don't get a tax refund.

So he is taxing me on my after tax income. i.e. GST on a second hand house?

No, the tax is on your accumulated capital - and you are paying it out of your after (income) tax income, or incurring a debt against that accumulated capital to be paid when the asset is sold. But perhaps I didn't understand the point you were making?l

"But perhaps I didn't understand the point you were making?"

I think this is where his policy is confusing.

If it indeed "incurring a debt against that accumulated capital to be paid when the asset is sold." That would suggest a pre-paid capital gains tax. Surely it would be simpler to just take the tax when the asset is sold?

If he is just taxing capital. Then how is the accumulated capital in a House different from the capital in any other good?

Also, if I only have 10% equity? Would the bank then be required to pay the remaining 90%? after all they are in theory deriving the benefit.

If it indeed "incurring a debt against that accumulated capital to be paid when the asset is sold." That would suggest a pre-paid capital gains tax. Surely it would be simpler to just take the tax when the asset is sold?

An inheritance tax - yes, pretty simple and they exist in many, many other tax jurisdictions. But of course, it's only a one-off collection - not as much cash flow in it for the govt.

Also, if I only have 10% equity? Would the bank then be required to pay the remaining 90%? after all they are in theory deriving the benefit.

If you only have 10% equity, then your mortgage is 90%, and after taking that into account, you will have little tax to pay. (Again, as I understand it). That's one of the interesting things about the policy, as I understand it - for old folks with lots of accumulated capital - it would pay to have a mortgage.

Based on all of that it seems an immensely ineffective way to tax.

If anything, I am even more opposed to it now.

"for old folks with lots of accumulated capital - it would pay to have a mortgage."

Not just old folks, everyone with half a brain would be taking an interest only loan for the entire time they own the house. You would have zero incentive to ever pay off your mortgage.

Yeah, well that's how I understand it.

And therein lie a problem with any tax - everyone looks to ways to avoid it.

Which is why I like land tax - you own the asset, you pay the tax. Simple as that.

To interest.co.nz - it would be great if Gareth could come in for an interactive live session - where people would put up residential real estate holdings - giving the basic parameters needed such that Gareth could quickly tell them what the tax to pay would be.

This is the problem I have with this policy - no one knows what it might cost them as an individual. And every time I've heard TOP talk about it - they try and counter the capital tax argument with a corresponding income tax lowering. Point is, forget the income tax reduction - TOP need to just get on with telling people what the deal is on the residential RE assets they own.

There is a reason why they do not do that - if they were straight about it they would get 0% votes.

This TOP tax on housing appears to be a form of means testing old folk.

Not a bad observation. I recall at one public meeting, Gareth commented that he'd earned $20,000 in the previous week for doing nothing (or something like that anyway). And I thought - why not tax that at an 80% rate and leave the pensioners with nothing but their own home and the govt super alone.

:-).

"why not tax that at an 80% rate and leave the pensioners with nothing but their own home and the govt super alone."

Because that's his money ;-)

And there aren't enough NZers with accumulated wealth at his level to fund the tax cuts he proposes.

He isn't really proposing tax cuts, he is proposing cost neutral tax changes. i.e. a whole lot of work for no benefit.

Agreed, but see my comment above - he does intend to cut superannuation benefits as the main means to reduce the government's need for increased revenue. In the first instance he is using a means test to do that.

Cost neutral tax changes do actually have benefit if they re align economic incentives appropriately. May not be a short term revenue boost, more a boost to the long term structural potential of the economy by increasing productivity.

Not a bad idea in itself, with oldies who are going to end up living off the fruits of preceding and succeeding generations and being net drains on society.

And don't forget it's the Cullen fund that is the nation's largest single taxpayer at the moment! It's the main reason National managed to scrape out any surplus.

Hi folks - I'm a long time lurker.

You know, GM has some fascinating ideas and based on the growing number of problems confronting this country it seems obvious that a new approach is needed, which National & Labour are unable to fathom.

What also seems clear is that all those folks who cry "Communism!" and other such drivel simply because someone has a idea to re-balancing the tax rules, then the idea is clearly hitting pretty close to the mark and is worthy of further investigation.

As a tax-payer in the "rich" bracket (presumably $100k+?) who doesn't mind paying taxes for sensible things, all I know is that I'm not going to lie down and roll over as my income tax burden increases relative to large NZ companies, multi-national corporations and those who generate wealth from property investment. Look at the relative tax burden across individuals, companies, estate taxes & CGT since World War Two (google it) and you will see the poor schmuck who earns a wage and is taxed on it is shouldering more and more, while governments struggle to pay for the growing demands for health, education, welfare, environmental clean-up and bailouts of companies that are "too big to fail".

And let's be honest - we've all seen that governments specialise in providing corporate welfare but politicians prefer to misdirect our attention to the "dole bludgers", refugees and the like.

I hope GM does really well this election.

As do I, but my greatest fear is that he tops out at 4.5% and allows National a fourth term.

Yes, I suspect TOP is taking votes that might have otherwise gone to the left block - so yes, there is that possibility. I believe the Electoral Commission recommended many years ago a lowering of the 5% threshold - but of course that did not suit incumbent parties.

.. had the threshold been just a smidgeon lower , Colin Craig and his Conservatives might have entered parliament ...

And with the benefit of hindsight ... what a disaster that would've been ... even more egotistical drongos in the halls of power we do not need ...

Nothing like a good bit of progressive policy to rark up conservative hand wringers. Good stuff Gareth Morgan - the sooner we get past this neo-feudalistic stage of modern history (safely) the better - hopefully he's got some great ideas for parliamentary reform too.

Spot on Gareth and TOP. Young people would be "barking mad" not to support these future looking policies.

These policies are Marxism on steroids.
These policies are about stealthily removing the value of assets into the clutches of the IRD, they also severely impact on leaving your children or others an inheritance.....there is also a far higher risk that by meddling in the value of housing assets that an OBR event is created which will see the transfer of depositors funds into the RBNZ.....nice....you'd get the assets including the cash while dangling a carrot of a small weekly payment and then you call it equality!!

People have the constitutional right to have a roof over there heads, they have the constitutional right to make their own way in the world and to reap the rewards of their labour. They also have the ancient right to be protected by parliament when a right contrary to their ancient rights are threatened.

Gareth Morgan's policies are milking the populace who have been successful and hard working under the pretence this is equality all the while calling himself a communist....sorry I mean econo-mist.......or should that be "missed"....

And then there are the mutterings on carbon footprints and volume approach while others around the world have laid bare the manipuation of data on climate change as seen here.....

https://www.youtube.com/watch?v=vIdTHFujDnI&feature=share

Further there is this issue on the labour market front where GM is pointing a finger without considering the effects of Recruitment companies and how they are ticket clippers on labour.....e.g. A builder might be paying $40 per hour to a recruitment company to supply labour but the recruitment company pays the building labourer $20 and pockets the rest........or equally it could be for bar staff, and waiters etc........the only business that is getting propped up is the one that recruiters are running.....so why have recruitment companies?.....simple really.....employment laws have added a whole layer of middle people clipping the ticket.......

Basically the government needs X amount of tax take to function and in general they are always looking for more and not less. Someone always has to pay the piper so if somehow your paying less, someone else is paying more. The problem is that Joe Average ends up being the "someone else" because it pays for the rich to rort the tax system because there is so much more money involved than us plebs paying PAYE

The point is a capital/wealth tax is a lot harder if not impossible for the wealthy to escape.

They could jack the top income tax to 50% and it would mainly hit middle class toilers. The ultra rich always have means of accounting gimmicks to minimise income, but they can't hide the value of the wealth or capital they possess. That as I understand it is the beauty of Morgan tax.

Of course the problem arises when he doesn't follow through with his promise to cut personal income taxes in compensation. Imo his proposal fits best with a lower, flat personal income tax rate of say 20%.

The problem is that nobody really understands his policy, that alone sinks it. This comments thread is a sample that's vastly more intelligent than the average kiwi, and I reckon about 10% max truly understand it here. Leaving it absolutely no chance of being sold to the public.

So if i hypothetically set up a family trust domiciled in Singapore and then Borrowed 100% of the equity in my property portfolio from it such that I personally have 0 equity (it is instead all owned by the foreign domiciled trust / mortgaged to the foreign domiciled trust), how much wealth tax would I pay? Does this method not sound much simpler than trying to shift income around and navigating "thin capitalization" rules, arranging hybrid mismatches, etc?

Doesn't it strike you as odd that a family with such a huge amount of wealth would propose a inescapable wealth tax. Do a thought experiment and imagine that GM becomes a kingmaker. Now what is the most likely coalition outcome? One thing is for sure that neither major political parties would support his radical moves. I interpret GM as unpredictable yet siphoning votes from Labour and the Greens and mainly NZF. That's probably a bit unfair since Morgan passes my two point character test of intelligence and good-will.