Have your say: Bill English wants to close loopholes for sheltering income

Posted in News October 19, 2009 - 06:55am, Bernard Hickey

Finance Minister Bill English gave a speech to the Institute of Chartered Accountants over the weekend where he talked in detail about the need for tax reform and his views on a variety of issues, including increasing GST, imposing new property taxes and close loopholes for property investors to shelter income. English said equity and fairness would underpin any changes to the tax system. He also said he would need to see strong arguments and the prospect for compensation before increasing GST. English echoed comments made by Prime Minister John Key that he would need to be convinced of the need for new property taxes, although he stopped short of ruling out a capital gains tax or a land tax. Here is the full speech below from English.

Good afternoon and thank you. It is a pleasure to be here. It's great to have the opportunity to explain the Government's economic plan and lay out some of the challenges we face "“ along with the role tax policy will play. The Government has a very clear plan to increase our productivity, grow our exports and start narrowing the income gap with our trading partners. We're focused on what matters: jobs and growth. Since the election, the economy has been the Government's top priority. One of the main effects of the recession has been a big fall in forecast tax, putting pressure on Government spending and limiting policy options. We are not alone. Governments around the world are facing the same pressures. Wrestling debt under control will be the fate of many Western countries as they emerge from the current crisis. They will end up with smaller public services, lower pensions or increased taxes as a result. New Zealand is better placed than many countries in determining how it responds. We don't want to go down the route of raising taxes. We are committed to a tax system that contributes to economic growth, is competitive internationally and helps New Zealand families get ahead. As we emerge from the recession it is worth pausing to reflect on whether our tax system is as simple, fair, efficient and robust as it can be. The fiscal and economic challenge But first, it's important to understand the wider economic and fiscal environment in which we are considering our tax policy options. Our current economic and fiscal challenges are more significant than we have seen for two or three generations. The Government inherited a New Zealand economy that had gone into recession in early 2008 and was under considerable stress from imbalances built up over the past decade. It's now clear that our economy started to get out of balance around 2003 "“ and it has since got progressively worse. Here's what I mean: "¢ Bank credit and household debt started blowing out "¢ Non-tradeables inflation took off and remained high at around 4 per cent "¢ Government spending ballooned "“ increasing by 50 per cent in the past five years "“ double the rate of economic growth and government revenue "¢ And since 2003, our productivity has sunk to a 25-year low. Let me set out two indicators of our lopsided economy: First the tradeables sector "“ that's exporters or industries competing with imports "“ has actually been in recession for five years, contracting by about 10 per cent in that time. Even more staggering, there have been almost no net jobs created in the tradeables side of the economy for the past 10 years. By contrast, the non-tradeables sector "“ domestic industries not competing with exports, including the Government "“ has grown by 15 per cent in the past five years. The second symptom of New Zealand's unbalanced growth is the red ink in the Government's accounts "“ the result of fast-rising spending and falling revenue. The Crown accounts for the year to June 30, 2009, released this week, illustrate the problems we face. Revenue was $2 billion lower than in 2008, spending jumped by $7 billion and the operating deficit stretched to $10.5 billion - an almost $13 billion turnaround from the $2.4 billion surplus 2008. We now face cash deficits of between $10 billion and $12 billion for each of the next four years. On current projections, we will not be back in budget surplus for a decade. The recession has had a significant impact on the Government's books. Over the four years from 2008, our total GDP will be permanently $50 billion lower than if the global financial crisis had not occurred. That means the Government will collect about $16 billion less tax revenue. With expenses continuing to grow regardless, we will double government debt by 2014 "“ borrowing an average rate of $250 million every week for the next four years. One of the consequences of issuing all of this debt is that the Government's finance costs will increase markedly. In recent years, these costs have sat around $2.5 billion a year. Budget 2009 forecast finance costs to double to more than $5 billion a year by 2014 "“ roughly the combined amount spent on law and order and defence. So these finance costs will compete directly with spending on more worthwhile public services. It was entirely appropriate for the Government to increase its borrowing to cushion New Zealanders from the worst effects of the recession. We are doing this to maintain public services, preserve entitlements and prepare the economy for sustainable productive growth. However, additional borrowing on this scale cannot continue indefinitely and the Government has taken steps to ensure the rising tide of debt is turned back. Let me stress here that public finance cycles are long. Net government debt rose steadily from the early 1970s and peaked at over 50 per cent of GDP in 1992. It then took another 16 years of near continuous growth to get it down and almost eliminate it by 2008. So we can now expect it to take 20 to 30 years for the Government's finances to recover from the impact of this recession. The Government's economic programme Before I discuss our thinking about tax policy in more detail, I'd like to set out the Government's plan for dealing with these challenges and increasing New Zealand's economic performance. It's important that tax policy is seen within this wider context. We have identified six key drivers of our economic programme over the next three to five years: The first area is reforming the regulatory environment and cutting away red tape getting in the way of business and productive investment. Regulatory Reform Minister Rodney Hide has been extremely busy working with the Government to get this significant two-year review programme underway. It includes the Overseas Investment Act, the Resource Management Act, the Building Act, the Holidays Act, electricity and telecommunications rules, and the emissions trading legislation. The Government's second policy driver is significantly lifting the performance of the public sector, while reducing the rate of spending increases. You will have heard a little about this from Revenue Minister Peter Dunne yesterday when he spoke about work being done to "Transform IR". The public sector represents about 30 per cent of the economy, so it's essential that it plays its part, particularly with the Government's finances under pressure. We've made it clear that we will improve both the efficiency and effectiveness of spending, while limiting the negative impacts of public policies on private enterprise. The next area is investing in productive infrastructure. The challenge here is quite simple. It is to ensure that the right level of investment is made in the right places by organisations with the knowledge and incentives to invest. Earlier this year, we established the National Infrastructure Unit. One of its roles is producing the first National Infrastructure Plan by early next year "“ a stock take of current demands and investment programmes which will become the focal point for industry co-operation. The impact of the Government's programme on infrastructure investment is already evident. We are investing $7.5 billion over the next five years to build and upgrade schools, roads, housing, hospitals and telecommunications. The Government's fourth policy driver is education and skills. There are several parts to the Government's focus in this important area. The first is literacy and numeracy at primary schools, driven by National Standards, which will set clear expectations, measure children's progress against those expectations and report their progress to parents in plain English. The second area is providing options for secondary-age students outside the traditional school system. The Government's fifth policy driver is innovation and business assistance. This covers government and business investment in research and development, in innovation, and in developing new markets and products. Our considerable investment in this area will help firms connect with overseas markets and consumers; as well as help them develop new ideas to create new and higher value products and services. Those goals will help drive productivity growth and investment in the tradeables sector, and improve our export performance. Finally, let me turn to taxation - the sixth focus of the Government's economic policy agenda for the next three to five years - and no doubt the area you are keen to hear about today. Taxation is one of our six policy drivers because of the pervasive influence it has on both the economy at large and on decisions made by individuals. As we have said, New Zealand needs to lift its economic growth. That's all the more important with 60,000 people now on the unemployment benefit and with unemployment likely to continue rising well into next year. We also need to increase household incomes so they can save, repay debt and, from the Government's perspective, so it can get back to budget surpluses sooner. This Government sees a simple, fair and efficient tax system that encourages New Zealand families to get ahead under their own steam as one of the key drivers of economic growth. Ideally, the tax system should impose the minimum cost necessary to get the revenue needed for vital frontline services and to support the most vulnerable. That means it should be simple to administer, easy to comply with and not drive behaviour and investment decisions. It should also provide the right incentives - allowing people to keep more of their own money encourages them to invest time and effort into improving their skills so they can earn more. This also has a productivity benefit for the economy. In addition, the system should be fair "“ most forms of income should be covered and where possible loopholes that allow the sheltering of income to avoid tax should be closed. Lastly, our tax system must be internationally competitive "“ New Zealand with its small population and capital markets needs to attract skilled workers and encourage people to invest here. And if our economy is to thrive, we need to ensure our best and brightest have good reasons to stay. It is no secret we have one of the most internationally mobile labour forces in the OECD, with huge numbers of Kiwis living overseas, the second highest proportion of expats after Ireland and strong migrant flows. In short, we rely on high levels of inward migration and investment. The tax system should help New Zealand attract and retain the people, businesses and investment it needs. Until recently, the relative simplicity of the New Zealand tax system was one of its strengths. However, it has become increasingly complicated. Tax Working Group Earlier this year, the Minister of Revenue and I announced the establishment of a Tax Working Group, led by Victoria University's Centre for Accounting, Governance and Taxation Research to review our tax system. The aim was to take a first principles look at the system and see how it could be improved "“ and in recent months the working group has set out some of its ideas in a series of public papers. The working group is looking at proposals that, when taken together, are fiscally neutral. The Government has a strong preference not to increase taxes to close the deficit. We prefer more efficient taxes over higher taxes. And, unlike many other countries, we have no desire to increase the tax take. Some of the challenges the Tax Working Group is considering are: "¢ Whether the efficiency and integrity of the tax system could be improved through changes to the tax mix. This will include consideration of the Government's 30/30/30 tax goal, and challenges associated with this in the current environment. "¢ Whether the tax base could be broadened so we are less reliant on personal and corporate tax. "¢ Whether changes to the tax mix could tilt the playing field away from borrowing and spending towards exports, investment and sustainable jobs. "¢ How we could simplify the tax system to reduce compliance costs and make it as easy as possible to administer. I'd like to take this opportunity to commend the Tax Working Group's work to date. The calibre of its experts "“ drawn from government, academia and the private sector "“ is extremely high. So far it has tackled its brief with clarity and rigour. The group's work is also extremely timely. Across the Tasman the Australians are conducting a review of their own tax system, led by the Secretary to the Treasury, Ken Henry. Australia is our largest trading partner, the source of much of our foreign investment and a destination that lures large numbers of Kiwi workers abroad, so we are keeping a close eye on developments. If the Henry review results in Australia moving to lower its taxes, our own review will leave us well placed to consider options that maintain our international competitiveness. So I look forward to receiving the Tax Working Group's report in December. We will consider its findings in the New Year and any changes will be signalled in Budget 2010. The benefits must clearly outweigh any potential difficulties to warrant significant changes. Let me be clear, equity and fairness will be key considerations, alongside benefits for the economy and for households. The Tax Working Group's papers on property-related taxes have generated a lot of public debate. And so too has the idea of increasing GST to provide revenue for personal tax cuts. The main issue here is fairness "“ low income earners, in particular, would have to be compensated for any increase in GST. There are arguments for and against these ideas and I'm happy for the working group to consider them. As a Government, we welcome debate, but we must be practical and realistic. As Prime Minister John Key and I have both stated previously: the Tax Working Group will have to come up with some fairly compelling reasons to convince us of the overall benefits of further property-related taxes or an increase in GST. High marginal tax rates The working group has raised a number of issues in its papers released so far. One of them is our internationally high marginal tax rates. An average wage earner with children loses over half of every extra dollar they earn, once our high top tax rates and the abatement of Working for Families tax credits are taken into account. This puts us in the bottom half of the 30 OECD countries on this measure. In the UK, France and Japan, the same worker would get to keep far more of every extra dollar earned. Getting to keep less than half of what they earn is hardly an incentive for people to aspire to higher incomes. In New Zealand the top rate of 38c starts at just $70,000 - about 1.5 times the average wage. This is much lower than the OECD average, which is about 2.4 times the average wage. In Australia the top rate at 45c is higher but you need to earn over A$180,000 to pay it, while in the US the top rate is about 40 per cent, but you need to earn about NZ$340,000 before you pay it. Differential tax rates and income support like Working for Families and student allowances create big incentives for people to minimise their "taxable income". This is amply illustrated by the 9700 high-income families with rental properties, who last year claimed tax losses, enhancing their eligibility for Working for Families payments. A case can also be made that a wide gap between the corporate and the top personal rates provides incentives to use the company structure to avoid the top personal rates. A key issue here is the overall credibility of the system. Large scale legitimate avoidance behaviour by higher income earners undermines the goodwill of lower income earners. It's quite telling that there has been virtually no growth in the number of people paying tax on $1 million of annual income since the 39 cent top personal tax rate was introduced 10 years ago. We don't want people spending their time and resources trying to avoid tax. Equally we also don't want IRD devoting all its time to chasing tax and compliance issues. As a country, we want families, businesses, accountants and lawyers looking at how to unlock greater income and productivity, not working out how to minimise their tax. I'm pleased to see the New Zealand Institute of Chartered Accountants and Tax Management New Zealand proactively looking at how the tax system for small businesses could be simplified to reduce compliance costs. They have set out two proposals: One is for micro businesses earning under $60,000 a year and not registered for GST to pay a final tax of 15 per cent based on turnover. The other proposal is for businesses with annual turnover of less than $1.2 million to have their income tax calculated on a cash basis, based on their GST return. I understand that a final report will be submitted to the Government next year for our consideration, after consultation with the SME sector. I believe these proposals have merit and they will not be dismissed out of hand. Tax policy officials will engage with the Institute on them. Examining the tax mix Another area the Tax Working Group is considering is the tax mix. As a country, New Zealand relies heavily on the taxes that are most damaging to growth - income and corporate taxes. Nearly 60 per cent of our revenue comes from these two sources. Here are some facts worth considering: In 2000 around 5 per cent of wage earners paid the top personal tax rate. In 2009 this has climbed to 9 per cent and it is expected to reach 25 per cent in 10 years. We collect the third highest ratio of corporate tax to GDP in the OECD. At the same time, distortions are created by the things we do not tax. Most people would see it as unfair, for example, that speculators can reap large tax-free gains while low and middle income workers are taxed on every dollar they earn. Inland Revenue has published data showing that last year the losses claimed by people with rental properties were $575 million more than the income declared from residential rentals. The net reduction in Government revenue was approximately $150 million, while the capital value of this asset class roughly doubled. This is a recent trend. In 1999 rental properties generated over $600 million in taxable income. Industries like farming, manufacturing and tourism, are vital to providing sustainable jobs as we come out of the recession. However, in recent years, large increases in property values have contributed to high interest rates for these sectors. Those higher interest rates, in turn, push up our dollar, reducing exporters' margins and making it more expensive for businesses to borrow. Again, this cycle harms our productive industries. Conclusion Can I finish by reiterating that the Government is clear about what needs to be done to turn this economy around. We have a balanced, targeted and effective plan to achieve that. However we need to make sure we get the kind of recovery we want "“ one that will create sustainable jobs and growth. Despite our considerable economic challenges, I'm confident about New Zealand's prospects because of the resilience demonstrated by many New Zealanders. We are seeing early signs of recovery, which I welcome. By backing ourselves as a country, we have a real opportunity to emerge from the recession stronger and more competitive than other countries. Thank you.

"The benefits must clearly outweigh

"The benefits must clearly outweigh any potential difficulties to warrant significant changes. Let me be clear, equity and fairness will be key considerations, alongside benefits for the economy and for households"......"potential difficulties..= any impact on voter support for National in Nov 2011.

by andy hamilton | 19 Oct 09, 7:50am

""We collect the third highest

""We collect the third highest ratio of corporate tax to GDP in the OECD. At the same time, distortions are created by the things we do not tax. Most people would see it as unfair, for example, that speculators can reap large tax-free gains while low and middle income workers are taxed on every dollar they earn.

Inland Revenue has published data showing that last year the losses claimed by people with rental properties were $575 million more than the income declared from residential rentals. The net reduction in Government revenue was approximately $150 million, while the capital value of this asset class roughly doubled.""

Interesting that he should focus on these numbers??? LAQCs under the microscope - though as Wally says the landlord/property speculator chapter of the National party will do their best to shoot any change down.....

by Roger Witherspoon | 19 Oct 09, 7:51am

Is he missing the point.

When my customers pay me less I take an immediate and automatic pay cut simply because there is less money to pay myself with.

It is the same for every other small business owner in the country. The boss gets hit hardest.

Why is it that simple business logic does not apply to the largest business in the land - the government sector?

I'd like to see an immediate salary cut of 30% for all public sector employees earnings over $250,000, scaling down to a 5% cut for employees earning less than $40,000. MPs included.

The governments' customers are paying less to the government for the services it provides, it needs to pay itself less to survive, just as I have to.

by jill | 19 Oct 09, 8:03am

@Roger In Ireland Govt Employees

@Roger In Ireland Govt Employees were given a choice resign or take a massive pay cut,how would that play out in NZ.

by Roger Witherspoon | 19 Oct 09, 8:07am

As a small business owner

As a small business owner I can deny reality and borrow from the bank to maintain my excessive lifestyle. Or I can borrow from the bank to keep my employees happy.

Both of the above lead inexorably to bankruptcy unless some other way forward can be found.

by Tired Farmer | 19 Oct 09, 8:15am

Well said Roger Witherspoon. Just

Well said Roger Witherspoon.

Just freezing salaries was an insult.

by We are Stuffed | 19 Oct 09, 8:19am

"This is amply illustrated by

"This is amply illustrated by the 9700 high-income families with rental properties, who last year claimed tax losses, enhancing their eligibility for Working for Families payments."

Is that all there are? Bugger all voters. Should be changing the rules & hammering them!

by Matt S | 19 Oct 09, 8:25am

Well as the saying goes...

Well as the saying goes... Turkeys don't vote for Christmas...

by Roger Witherspoon | 19 Oct 09, 8:30am

Jill. I know I sound

Jill.

I know I sound mean but my intention is to suggest decisive and immediate action is much less painful than denying reality.

Better a 20% salary cut now than a 50% cut and 20% redundancy in the public sector later, which is a real danger if we were to continue to deny reality until it hits us. At the moment we still have choices, but that does not continue forever if you are doing silly things.

Other commentators have likened western governments to spoiled teenagers and I think it is an apt analogy.

by Steptoe (Steps) | 19 Oct 09, 8:41am

"The Government inherited a New

"The Government inherited a New Zealand economy that had gone into recession in early 2008 and was under considerable stress from imbalances built up over the past decade. It's now clear that our economy started to get out of balance around 2003 "“ and it has since got progressively worse."

An interesting statement....
At no point does he state WHY it started, but rather what happened...
This sort of mentality leads to 'patch ups' rather than discovering the cause.

Now if English has continued on and said " was due to restrictions lifted from banks on lending criteria, ie min despots for high cost items (cars/houses), and criteria for ability to repay, controlled by the RBNZ"

We have a major fiscal crisis, and a RB that all it can do is change the OCR, and take a hard line by "warning" certain practises are nor appreciated since the late '80s

Total Gov control doesnt work
Total or near total free market doesnt work.
Extremities never work long term
A good balance in between creates stability, which since Thatcher , got thrown out of the window around the world.

A doctor treats only the symtoms, when the cause is unknown, It the source is known, this is repaired....It appears English cant think things this far thru.

by PeterR | 19 Oct 09, 9:01am

Roger Witherspoon: <blockquote> Is he

Roger Witherspoon:

Is he missing the point.

Absolutely, and deliberately. Therefore he is just wasting time and resources while making the situation worse. That can't last forever, so will come to an end. A simple conclusion well understood by some. Others (most still) are going to great efforts to deny the possibility.

I would prefer - personally - not to spend any more time on whether any of Bill's ideas will work, but to direct my efforts at understanding what can be done when his (and co-failures) efforts inevitably fail.

by SORE-LOSER.. | 19 Oct 09, 9:05am

Roger that..Roger. The reality is

Roger that..Roger.

The reality is that we should ALL have lived with-in our means. And the MEANS were always not apparent to some.

Never had to save for a RAINY day. Well it is POURING........BILLS.

A fools PARADISE, where there is no INCOME limit for some. The gravy train never stops.

Why should we as TAXPAYERS pay...for others mistakes...TWICE.

Adds insult to injury.

We do not need an enquiry, a Committee, a GANG CONVENTION.!!!!!!!!!!!.

Vote them all out I say....

No brains, no perception, no foresight, no honesty, no humility.

They are the PROBLEM...not the Solution.

NONE of them get it...where it COUNTS...in the POCKET.

This country is one big business.....or WAS.

A Political Joke.....run by Civil Serpents...you can BANK on it...

and here is another....

How do you run a small business. Give a large one to a POLITICIAN.

And watch em all MILK it.

by Les Rudd | 19 Oct 09, 9:12am

Steps - like your comment.

Steps - like your comment. Bill and those before him are not dim. IMO they do know the causes, but to address them is just too hard as it'll impact on too many vested interests, whether ranging from dogmatic 'faith' in failed philosophies to personal wealth, theirs and the dominant BB supporters - on both sides of parliament. I think it's no more complicated than that. Hence the spin and considerative gymnastics now being played out. It's fun to watch though, nearly as much fun as listening to the 'change yes, but not in my back pocket and portfolio' style comments peppering these blogs when we get on these kind of topics. Sure, chop back the size of the state, I'm all for it - I know where I'd start, However, can we continue to ignore:

"Differential tax rates and income support like Working for Families and student allowances create big incentives for people to minimise their "taxable income". This is amply illustrated by the 9700 high-income families with rental properties, who last year claimed tax losses, enhancing their eligibility for Working for Families payments.

Large scale legitimate avoidance behaviour by higher income earners undermines the goodwill of lower income earners.

..... there has been virtually no growth in the number of people paying tax on $1 million of annual income since the 39 cent top personal tax rate was introduced 10 years ago.

We collect the third highest ratio of corporate tax to GDP in the OECD. At the same time, distortions are created by the things we do not tax. Most people would see it as unfair, for example, that speculators can reap large tax-free gains while low and middle income workers are taxed on every dollar they earn.

Who wouldn't want some change in these areas too?

by steven | 19 Oct 09, 9:24am

RE: 20% public sector losses

RE: 20% public sector losses later....if 20% can be got rid of later then why not now?

That would also of course send our economy into a tailspin depression....so a a business its hard now, well it could be a lot worse.

What's missing is govn competence...Act, National are no better than Labour....anybody who's careful saves for a rainy day in the good times so they have a buffer for the bad, instead National drove tax cuts, insisting that it was prudent for ppl to be given the money so they could look after themselves, instead it fuels bubbles, the mistake was to assume rational behavior. Labour on the other hand (mostly) simply spent the excess tax take, so are little better, in fact maybe worse as the spending wasnt controlled. To me the Govn's duty is long term, 10, 20, 30 years. It should set a tax rate for that long a time and invest during the good times so it can have stable and sustainable during the bad and borrow minimally, until we get to that state I think we will always have more pronounced booms and busts...Govn spending these days is too large not to have a significant effect on an economy.

regards

by Harriet | 19 Oct 09, 9:28am

@Matt S: Turkeys may not

@Matt S:
Turkeys may not vote for Christmas, but one things for sure.... 25th December is going to happen... call it whatever you like, and Bill's just reminding NZ, through his latest speech, that it will. No of us will be able to say, "How unfair! Why wasn't I told..."

by steven | 19 Oct 09, 9:32am

"Most people would see it

"Most people would see it as unfair, for example, that speculators can reap large tax-free gains while low and middle income workers are taxed on every dollar they earn."

Add in small businesses...The speculators are also not creating anything, no goods no jobs and it seems no tax...

To me the biggest imbalance is right there, the real economy where employers and employees are and the financial or paper money economy that really just lives off the rest like a blood sucking vampire squid....Until we get back to a real economy I think we will stay in dire straights....so the leeches need to be burned off, I think its total cr*p that the "rich" speculators effectively pay little or no tax and can even claim WFF...oh so they may leave....excellent and good riddance, they dont employ anyone, produce anything and as shown are a net negative tax, we should hand them a free air fare to OZ....

regards

by PeterR | 19 Oct 09, 9:42am

A diversion: I thought it

A diversion:

I thought it would be interesting to see what the job market was like at the moment for economists and did as broad a search as possible for them on Seek.
http://seek.co.nz/jobsearch/

There is only one job if you remove from the 4 listed the engineer and the role in Queensland listed twice. The role:
http://seek.co.nz/job/senior-b-economist-b/wellington-central/16083385/3...

I think it is interesting to look at what they want.

by W. Kunz | 19 Oct 09, 9:45am

Most articles this morning are

Most articles this morning are about calculators and numbers in stead of what to do shovels and brains - the real economy. It is a problem.
How much longer can this country afford to have a situation where the government and the private sectors banging their heads together - crazy !
Obviously the severity and consequences of this recession is still not understood.

by Paul | 19 Oct 09, 9:46am

Every action has a reaction........

Who is everyone looking after/out for here?

Do public servants get massive profits in the good years like business owners? [I love pouring petrol on fires].

Seems like things just move slower than people would like.

I can see reductions in the public service, however then times will be booming again then there will not be enough services and words like "historic under investment" will be used.

I note this is an economic blog, but it is very one eyed to economic issues ;) There is more to the world than economics.

Why do we need growth? Why can we not just stay as we are? No more people other than natural growth? Why must be live longer?

What is the demographics of the people that avoid the most tax?

by Roger Witherspoon | 19 Oct 09, 10:45am

My comments were really there

My comments were really there to point out that if we hand over the reins to the IMF as we seem intent on doing then Ruth Richardson's budget will seem pretty harmless.

For what it is worth there seems to be some agreement that tax cuts usually have a x3 multiplier effect on GDP but that government spending has no multiplier (yes I know its agreement amongst economists and so not necessarily true, but you use the tools available). So tax cuts are good in the long run.

Not balancing the books could quickly lead to disaster ala Argentina.

by Greg | 19 Oct 09, 11:05am

If things go as they

If things go as they appear, and Bill English actually drives through a change (ie canning LAQC's) that would hurt some of his constituents I will be impressed.

Admittedly, it is a fairly small bloc of voters, but it would be refreshing to do something that is in the national interest, rather than National's interest....

by ruru | 19 Oct 09, 11:17am

Greg: Whether Bill English gets

Greg: Whether Bill English gets his way will depend what the Nats' micro-polls of the key swing voters say. Why not ask Steven Joyce; he is the strategy man.

by John P | 19 Oct 09, 11:28am

Bill's forgetting that many small

Bill's forgetting that many small and medium sized business have since 1999 borrowed on the back of increasing equity in their own homes, as it is far easier to qualify for a property loan than a business loan (presumably as banks believe property is far safer). This rarks up interest costs, which are indeed tax deductions - so far less income being made. This would be hard to measure but it would be in the many millions.

Perhaps the issue is to limit tax deductibility on interest to a maximum of say 70% of the (Government) valuation of properties. This would also encourage more prudent levels of gearing, buying behaviour, and the save now, buy later mentality (not the buy now, save later {or never} mentality which National and Labour Government has failed us on for nearly 40 years in terms of continually spending more than they earn).

Time to slash Government services, privatise (partially or fully) State Assets and get more user pays systems going on.

Cheers JP

by Roger Thompson | 19 Oct 09, 11:39am

I asked the boss for

I asked the boss for cold hard cash , so he froze my wages . .......... . Memo to self : Be more pacific about wotcha ask for . ( wanted a bird with long legs . Smart alecks at the dating agency sent an emu to me . At least it's bill does something useful , unlike National's . )

by William | 19 Oct 09, 12:00pm

Don't hold your breath. This

Don't hold your breath. This government is WEAK and lack the political will to do the right things.

by jimmy | 19 Oct 09, 12:56pm

This is semi encouraging. negative

This is semi encouraging. negative gearing tax credits in my opinion are the MOST inflationary of the speculation friendly tax laws we have. Capital Gains tax is on realised PROFIT, so you actually have to make a profit first. Tax credits a) lower the break even point for an investment and b) allows more cash flow and therefore more leverage and/or more properties per investor.

At least Bill is publicly acknowledging this and maybe softening up the general public. I would not want to introduce this in immediateley. Maybe say in 2 years we will allow 50% deduction in 5 years 100%. This would enable landlords to get their affairs in order, either become more profitable or sell at lower prices. It would also be an immediate signal to the marketplace - given that prices currently price in this tax break we would expect an immediate drop. who knows by how much?? Maybe 15-20% of existing values reflects the tax break, but we could add more based on negative sentiment etc etc.

So COME ON BILL. LET DO IT!!!!!!!!!!!!!!

ps - this will not result in massive rent increases, so dont believe that bs. Landlords charge what they can get based on supply and demand. If they could get more they would - the point is they cant. The tax credits subsidise house prices NOT rent. If it really did result in rent increases, WHY WOULD LANDLORDS COMPLAIN ABOUT THIS SO MUCH IF IT LEAVES THEM IN THE SAME NET POSITION?????? And dont bring up Paul Keating' attempts to do this in Aus. Only 1 capital city's rents rose after bring this in, and this was due to other factors.

by Wally | 19 Oct 09, 1:02pm

Nice thought Greg...not a hope

Nice thought Greg...not a hope in hell but never mind. Right...back to learning Mandarin....

by SORE-LOSER.. | 19 Oct 09, 1:19pm

Well here is a suggestion

Well here is a suggestion about closing LOOPHOLES.....BILL.

Talk to your old mate PITA, about where the GANGS hide their loot. Then confiscate the LOT.

How a RORT of hiding your ill gotten gains & assets to then claim SOCIAL WELFARE, WFF, A huey or two, ACC etc etc....., is actually perpetuated in the name of Equal Rights... for all.

Yeah right.

SOME ARE MORE EQUAL THAN OTHERS....an ANIMAL FARM quote. (YES AGAIN).

Should actually make em all eligible for WORK as a TAX CONSULTANCY the way they WORK around the systems. Now there is a growth industry...for jobs for em.

SHARP-as-aTACK.. is a CONSULTANT to them already and should have an affinity with the ethos. Make him MINI-STIR.

Should get them to advise the IRD about reverse psychology and the like.

A day-out on the long suffering TAXPAYER is NOTHING to what they steal DAILY.

They could have AFFORDED their own AIRFARES & Tea and Bikkies.

(yes it is nearly the same spelling)

Ever since I came to New Zealand, I have watched the GANGs lead the POLICE around on MOTORBIKES that the average person in New Zealand cannot afford.

Try the old TAX EVASION route as per USA did with AL- CAPONE.....CAPICHE....

GET A BILL through parliament BILL, like you push through the old RECOMPENSE for POLY's lark. You know how it works. UNDER URGENCY.....cos this is URGENT.

The POLY-TIT-CIANS and other super Theorists have put the GANGS into the TOO-HARD basket for way too long.

IT IS NOT HARD.....TAKE MY ADVICE...it is FREE... NO CHARGE...will pay-off in the long run, no BIKE, NO JAILs, No ACC, No Social Welfare cheats, no WFF, no bashed KIDS...no jet travel, no DRUG courier-ring. ...etc.....etc....etc...etc.

Just like the old days... no work, no pay.

PITA ....PESONAL INVESTIGATIVE TAX AVOIDANCE...yes..... .....PITA..

Doesn't even need a LOGO....don't get me started on that one.

by Roger Thompson | 19 Oct 09, 1:33pm

We don't have to learn

We don't have to learn mandarin , Wally , ours come with written instructions : " peel off rind before eating " .

by Les Rudd | 19 Oct 09, 1:44pm

Hot off the PEC press...enjoy.

PEC believes John Key is just tinkering with the economy

Bill English, Dr Bollard and Treasury are doing their best to paint an accurate picture of where we are as a country. Unfortunately the Prime Minister seems to be presenting a very different landscape to the public. If borrowing an extra $250 million a week doesn't make the Prime Minister and the average New Zealander think we have a problem with the way our economy is operating, what will asks Selwyn Pellett, the spokesperson for the Productive Economy Council.

"The fact is that we are living beyond our means and we need to restructure our economy. If we were talking about a business, the need for a restructure would be taken for granted. The shareholders would be demanding it and the CEO would see the need to make hard decisions or know they will be replaced by the board. Well, our economy is a business, and we are all shareholders. It's time we made that demand, and its time the Prime Minister realised that hard decisions must be made," says Pellett.

"Right now the Prime Minister is behaving like a CEO whose desire to be popular is overruling his duty to look after shareholders' interests. Perhaps it's because the government really doesn't understand the problems we are facing due to lack of education, skills, training, or first-hand knowledge but unfortunately the more likely scenario is that John Key knows there are no populist policies in his arsenal that will address the size of this particular problem," says Pellett.

"Populist policies have worked well for the government thus far; threatening to get tough on crime, crush boy-racers' cars, stop benefit abuse, reduce government spending, stop access to pseudoephedrine, have a job summit, build a cycleway and saying no to capital gains tax, have all helped the government's approval ratings. But they make little difference to the mountain of debt that John Key is personally authorizing on our behalf and the systematic destruction of our export sector" says Pellett.

If John Key wants to be respected as a Prime Minister rather than just being popular then we have a simple and coherent list of measures he needs to introduce:

"¢ Stop giving PAYE deductions to property speculators (ring fence losses as Australia does)
"¢ Bring in Capital Gains Tax (CGT) on everything other than the family home (as Australia does)
"¢ At introduction of CGT exempt all current investment so that CGT is not retrospective (as Australia did)
"¢ Capital Gains Tax only applies on the difference between inflation and the realised value (as Australia does)
"¢ Progressively introduce compulsory superannuation (as Australia did)
"¢ Increased contributions in times of pending inflation and reduced contributions during recessionary periods (as Singapore does)
"¢ Adopt a managed dollar as part of our monetary policy, against a basket of our trading partners that ensures both price stability as well as protecting our tradable economy (as Singapore does)
"¢ Recapitalise Kiwi Bank to take market share and hard wire its behaviour to the needs of the RBNZ thus reducing the negative impacts of the big four Australian Banks on our economy
"¢ When we have addressed the current distortions then we should consider promoting 'winning behaviours' through the tax system (as Australia does)

These policies are not radical but they will have a radical effect in rebalancing our economy. We have Dr Brash looking at how New Zealand can get closer to Australian levels of productivity and prosperity and we suggest these policies are fundamental to achieving that aim. All these policies have been proven in other successful economies, so why wouldn't you take them seriously? Anything else is just tinkering and no business facing major challenges has ever transformed its performance by tinkering.

It is obvious to anyone who has worked in Australia the effects that things like compulsory super, a broader tax base (and therefore lower relative PAYE) and a strong local banking sector have had on the long term wealth generation of Australia.

"Let's focus on aligning our tax and savings policies and supporting our own local bank and then perhaps we will enjoy the Economic Sovereignty (freedom) that both Australia and Singapore have as countries and that we have lost by chasing the selfish, tax-funded, property speculation bubble of the last 20 years," Pellett says.

"It's time for John Key to step up and display the sort of leadership and skills we demand from our business leaders as they turn failure into success. The wait and see approach of successive governments while blaming the last administration has failed us for the last three decades. Populist policies won't make a scrap of difference to the country so let's get on with the pain of restructuring as there are no soft options left," says Pellett.

by William | 19 Oct 09, 2:25pm

Les Rudd, After reading your

Les Rudd,
After reading your comment, I decided to see how Singapore's economy is doing. They must be doing something right. What's their secret??

http://www.ft.com/cms/s/0/8957b76a-b6ca-11de-8a28-00144feab49a.html

"The Monetary Authority of Singapore (MAS) said GDP expanded 14.9 per cent on a seasonally adjusted quarter-on-quarter annualised basis in the June to September period, after a comparable revised increase of 22 per cent the previous quarter."

We in NZ were so excited with just 0.1% growth.

by jimmy | 19 Oct 09, 2:43pm

Les, Agree with the proposals

Les,

Agree with the proposals completely. however, dont agree with the comparisons with Australia. Their CGT is now halved after a year and is NOT inflation adjusted. Australia proeprty bubble pretty much as bad as ours, partly becasue they have other incentives in place. They also share with us the -ve gearng tax credits, these HAVE TO GO!!!!!!!!!!! The only thing I would adopt from Aus would be compulsory super.

and I see no reason why existing owners of property should be exempt from capital gains tax. Then NO existing owner would sell and buy another property. Simply take market valuration now and charge tax going forward. I would also put a timeframe around ability to claim back realised losses, highly possiblr in the next few years. Maybe only claim losses after 5 year moratorium.

by Selwyn | 19 Oct 09, 2:45pm

William have a look at

William have a look at the data in Growing up to Business in Power Point on the PEC web site and you will see Singapore has long since left New Zealand behind and more importantly the presentation tells you why. www.pec.org.nz/2009/09/growing-up-to-business/

by Roger Thompson | 19 Oct 09, 3:00pm

Les : Some very good

Les : Some very good points . Pity that JK won't read them . I'm still not in the CGT camp . I believe that financial bubbles will pop up ( and implode ) in any asset class . Something to do with " irrational exuberance " ( big Al. ) . But you are on to it that study of Oz & Singapore , as a template for our future , won't do any harm . We're mired in debt and ponzi-like property bubbles anyway . JK seems to be sleepwalkiing to the next election , as someone corrected me , he didn't have a mandate for sweeping change . He electioneered on " steady as she goes " for the first term ........ so we wait , and wait ......... Oh dear . Where's the gummy bear bag ?

by Les Rudd | 19 Oct 09, 3:13pm

William - there's no secret,

William - there's no secret, Singapore have policy appropriate to a small, open, exporting nation - we don't. It's a choice.

Jimmy - "Australia property bubble pretty much as bad as ours, partly because they have other incentives in place." The bubble effect is dealt with by better inflation control, meaning credit/money volume control, see how Singapore do that, above. The purpose of introducing appropriate asset/capital taxation is to be able to lower corp and income tax so that motivation for productive activity regains balance against that for passive investment in assets - that do well because we do not effectively deal with inflation! Again dealing with this is a choice. Successive governments have proven too lame to make a better choice.

In addition Auz is, "...promoting "˜winning behaviours' through the tax system", for instance via tax credits for R&D, that too is a choice. Labour spent far too long catching on to that idea before introducing something infused with their character - bureaucracy - this gave National a perfect excuse to bale while looking for cash for election focused income tax cuts.

Roger - it's a choice - red gummy bear, or blue gummy bear? Cheers, Neo.

by jimmy | 19 Oct 09, 3:20pm

Les, I agree with you

Les,

I agree with you on CGT. My point is that Aus does not currently have a full CGT, so we should not be following them.

by Grandy | 19 Oct 09, 3:21pm

Selwyn, Good points and well

Selwyn,

Good points and well noted. Singapore, with a population about the same as ours yet without natural resources, has been growing fast and gaining its recognition globally. Singapore's companies have been investing significantly in Australia. Just take one example - does anyone know which company owns Optus in Austraila, and maybe Power company in Melbourne? Perhaps, it is time for more discussion to know why Singapore companies/consortiums are not investing here and why are we not tapping on their expertise?

by Roger Witherspoon | 19 Oct 09, 3:32pm

Personally I think PEC are

Personally I think PEC are talking about re-arranging the deckchairs on the Titanic. If the public sector is too expensive then cut its cost now.

Aussie property is a complete and total disaster, see
http://www.debtdeflation.com/blogs/2009/10/02/when-herds-collide-on-the-...

We are heading towards the cliff and talking about how fast to go rather than applying the brakes.

by Roger Thompson | 19 Oct 09, 3:34pm

Grandy : If you recall

Grandy : If you recall the opprobrium which met Singapore Airlines entreaty to our Gumnut ( Shipley ? ) when they wished to up their stake in Air NZ . And how Cushing & Co. subsequently destroyed the company on their ill-fated jaunt into Ansett Australia . Why would Optus , anyone , wish to invest here ? We are the French of the Sth.Pathetic , ignorant , racist , and middle-finger saluting the very people who could assist us in growth . Dare I venture into the Cullen debacle over the Dubai consortium who sought a corner-stone stake in Akld Airport , to grow the business , to benefit all . We scuppered that , and destroyed a mass of investor wealth , $ 1.5 billion or so . And there was Air NZ , newly bailed out by the tax-payer , leading the rally to oust the " invaders " . Ignorant goons , their business would have grown too . Bloody miracle that anyone else in the business world still gives us the time of day !

by Les Rudd | 19 Oct 09, 3:43pm

Roger W - " If

Roger W - " If the public sector is too expensive then cut its cost now." Yes, agreed. I've little doubt there are many we will never miss if they go, in fact in some areas, ie. so called business support, business would be much better off without them and paying lower taxes, because they are no longer funded. Plus sort this out:

http://blogs.nzherald.co.nz/blog/show-me-money/2009/9/20/councils-out-co...

by SORE-LOSER.. | 19 Oct 09, 3:47pm

http://news.aol.com/article/bessie-mae-berger-homeless-at-97-beg

http://news.aol.com/article/bessie-mae-berger-homeless-at-97-begging/721636?icid=main|main|dl1|link2|http://news.aol.com/article/bessie-mae-berger-homeless-at-97-begging/721636

I do not CARE what KEY or anyone was elected on. The KEY thing is action needed now, not promises made kept, just to keep a JOB...cos that is all it is.

You can whistle your way down the swanny, but I personally require some real action, to stem the rot.....and RORTS.

All we get is SPIN.

All the punters need is a PLAN.

Not that that will be forthcoming.

Personally I have a THEORY.

I think extending the RORTS AND PONZI SCHEMES will do us more harm in the long run.

MORALLY....as well as financially.

Never trust someone who has their best interests ...in your pocket.....yada yada yada.

If any NATION treats Their Elderly how they are being treated by this Grand National, USA, UK, etc....this is likely to happen again and again....and one day you will be elderly too.

Watch yer wallets children, Granny & Grandpa, may just leave the money left over to the RSPCA...or Save the WHALES, or to SAVE THE PLANET, not that they are not good causes....especially the last.

TRUST.....is earned.......NOBEL or not......TOP JOB...or not.

Like OBAMA.....LIKE KEYS, LIKE BROWN, Like HELL-EN....watch who you TRUST.

TRUST......My eye..my sweet FANNY ADAMS.....

Too busy globe-trotting...like some other MP's I will and shall and do mention.

The muck is there to be raked....and it is not pretty. If only PUBLIC knew.

See this link above...as characteristic of OBAMA's brave new world.

Just one TANKFUL of his AIR-FORCED WON would have set this elderly lady up at the HILTON for life. Along with many others.

CRAFARS at least did it to COWS.....

WE/THEY... are just as GUILTY if this continues to the gain of the ROTTING....... RORTERS. who started all this fiasco.

GOLDLMAN...aptly named is winning..maybe FINANCIALLY.........but not MORALLY.

Look in the MIRROR as yer sip yer LATTE.

WHITE-HOUSE....

Not for a long long time. ...and that is not racist...but a moral observation.

BUSH may have started this along with his rorting cronies.

Who does it take to stop it.....US....and that is not short for UNITED STATES.

Hitting the MOON is nothing....if you hit ROCK BOTTOM...morally here on EARTH.

by Kate | 19 Oct 09, 3:49pm

"At introduction of CGT exempt

"At introduction of CGT exempt all current investment so that CGT is not retrospective (as Australia did)" - fascinating - reward yesterday's speculators - punish tomorrow's.

Sounds like a boomer inspired policy to me!

by Grandy | 19 Oct 09, 3:55pm

Hi Roger Thompson, Oh yes,

Hi Roger Thompson,

Oh yes, I recall some of those past incidents now. Singapore Airlines has good network in the world platform, and their Changi Airport are also world class, and some other countries are getting them to built airport and manage for them. Others are inviting them to build their township development projects and manage it there after. They have world class infrastructure development companies/consortium ie. in telecomminucations, transport/road work, township development, turnkey project, shipbuilding, oil-rig infrastructure/facilities, oil refinery (NZ is purchasing petrol from them), and so on.... Moreover, English is their official working language and also first language for most. It is a sad story for us to miss them out the last time.

by Roger Thompson | 19 Oct 09, 3:57pm

SORE : Absolutely agree .

SORE : Absolutely agree . Exceptional times demand a response . Imagine if Churchill had said , " not now dear , we have no mandate , we'll deal to the Hun after the next election ". And as Bernard says , why waste the opportunity of a good crisis . And this is a doozy of crisis's ! And it is showing the weaknesses in our financial system . And displaying the utter folly and recklessness of the Cullen years .......... But we wait . And wait ............ 'Cos John has become institutionalised . The " Humphrey Applebys " have got to him . And he has become Jelly Key .

by SORE-LOSER.. | 19 Oct 09, 3:58pm

I suggest compiling a few

I suggest compiling a few sensible items that they could start with..GUYS.

Lateral thinking is obviously not their forte.

Perpetuating the status quo of problems social, financial and other-WISE. is what is needed from the BLOGGERS....not these BURGHERS...cos they cannot read the mood of the Nation.

I think MR OBAMA may find out soon...too. The peace prize, may be opposite of his legacy.

by jimmy | 19 Oct 09, 3:58pm

Kate, Completely agree. And yes,

Kate,

Completely agree. And yes, probably boomer inspired.

by Matt S | 19 Oct 09, 4:24pm

Media release from the Productive

Media release from the Productive Economy Council.

Full story here:
http://www.scoop.co.nz/stories/BU0910/S00482.htm

Edit: ooops .. duplicate from above... sorry Les..

by Kate | 19 Oct 09, 4:29pm

jimmy - exactly - so

jimmy - exactly - so why is PEC advocating the exemption?

Would be nice if one of them popped in here to explain/rationalise that one.

by buyerinchch | 19 Oct 09, 4:47pm

For all those thinking a

For all those thinking a drop in residential properties value and canning LAQC's would be a great thing your dreaming, they are propping up most of the small businesses ive worked for / ran, and claming small amounts of tax back keem them viable. Banks wont give finance to small business so personal household equity is used to pay wages during hard times, wait and see what happens when the bank comes calling for more cash to be put back in...will be twice as bad as 08/09 businesses will be dropping like flys ah-la-iceland.
Those managing to get WFF must be pushing the limits, and will have to pay depreciation back at some stage, cant hide from that forever!

by Fairfax Orouke | 19 Oct 09, 5:06pm

Agree buyerinchch. A crabbing of

Agree buyerinchch. A crabbing of prices for about 10 years is the only hope for your small business owner and anyone who has an interest in keeping the young on our shores.

by SORE-LOSER.. | 19 Oct 09, 5:27pm

Get over the BOOMER inspired....malar-KEY.

(Sorry couldn't resist as usual).

A team effort maybe FINANCED and WORKED by everyone is what is required.

All factionalising does is mask and divide.

MMP is some of the cause. An idiot can make or break.

Look what hoops the Health Care goes through in the SENATE in USA.

CRAZY....MAD AS CHOOKS.

Non-PRODUCTIVE.

NONE of the currently elected would get my VOTE. No Confidence...

TOTALLY no CHANGE...in USA or here.

We are being PLAYED.

Do not allow them to PLAY us all as tarred with the same brush..

Anyone who thinks that BLAMING just one faction is the problem, not the solution.

I can think of many, many other culprits.

ONE-EYED is not conducive to resolving, what we need.. a collective problem resolution.

Leave that to the POLITICIANS, who can only squabble.

We are all in the same boat around the WORLD...Currently with no SKIPPERs in site....or SIGHT.

INCITE...(there I go again).... a REVOLUTION for CHANGE, not nit-pick at one GENERATION...

Young, old, GEN XYZEE....read my lips...and read everything here and linked.

There are some bright minds, often not in POLITICS, but business at all level.

I learn every day.

You can teach an old DOG. NEW TRICKS.....and that is not a plug for the TV programme about OLD FARTZ....even older than I.

We need a forum for CHANGE. this may just be the ground swell.

I like a good argument from all sides. But no one has really suggested we WORK together.

I am just a SORE-LOSER.... and I do not mean MONEY.

I am going to point out what I think is wrong...on all counts.

Disagree if you like, debate your side. Only that way lies a solution.

It is not forthcoming elsewhere as there are way too many divided factions.

I give KEY and the other POLYs collectively my mandate for change, starting NOW.

FORM A damn COALITION at least....until we are out of the WATER.

Cos change is needed.

As long as they all drop their Salaries and perks to the standard of the average wage and put their MOUTH where their MONEY is to the benefit of ALL new Zealanders.

Sometimes I shout, Sometimes I rant, sometimes I try for humour. And sometimes I find that different people agree with me, use my expressions, and I use theirs.

As a forum for CHANGE it is the only one we have. Otherwise I wouldn't be here so often.

We cannot all run businesses, but we rely on BUSINESS of all sorts. Many around here are failing..... daily.

ASK Bernard. This is his..believe it or not....with other areas financed by other means...and the tick-through.

He does not always have to agree with them all...but I am sure he knows his worth is to ADAPT.

At the moment Finance is failing NZ and Business for a lot of reasons, but MANKIND cannot fail NZ....even if GREED did.

We have to ADAPT.

by Wally | 19 Oct 09, 5:46pm

"Jelly Key" harrrrrrhahaha. Jeeez Roger

"Jelly Key" harrrrrrhahaha. Jeeez Roger that's you off the list for knighthoods.

by Robert | 19 Oct 09, 6:23pm

Have a read of this

Have a read of this speech by Dr Don. Best info I've read in a longtime.
Actually put the torch to almost all the rubbish talked by most of you.

Better listening to him than English being his normal useless self.

http://www.nzcpr.com/guest168.htm

by Kate | 19 Oct 09, 6:47pm

That Brash speech is pathetic

That Brash speech is pathetic ... Taskforce 2025 should be renamed "back to the future".

Does this country not have any young forward-thinkers? Why do we keep getting these ancient ex-public servants planning for a future which they are unlikely to live to see?

by stevek | 19 Oct 09, 8:00pm

"It is no secret we

"It is no secret we have one of the most internationally mobile labour forces in the OECD, with huge numbers of Kiwis living overseas, the second highest proportion of expats after Ireland and strong migrant flows. In short, we rely on high levels of inward migration and investment. The tax system should help New Zealand attract and retain the people, businesses and investment it needs."

I don't like the comparisons with Ireland given their current state. Ireland attracted a lot of immigration and capital with its tax structure, but look how quickly it left again. As soon as Eastern Europe offered a better deal foreign corporates started bailing and much of the hot money ended up in real estate instead of more productive investment.

No doubt you could start a short boom in NZ by offering all and sundry the best tax rates or some other incentive but the people and the money will leave as soon as they get a better offer.

Is slow and steady progress the best or is it better to boom and bust rather than never boom at all?

by Nath | 19 Oct 09, 8:56pm

There's an interesting group in

There's an interesting group in Oz called 'Prosper Australia' who advocate replacing all taxes with a rent for land. That is, you pay rent on the value of your land only (not improvements) to the community as a form of tax, and that's it.

http://www.prosper.org.au/our-policy/

This is based on Fred Harrison's theories - he is the one who has so far predicted the GFC play-by-play, and argues that it is speculation on land which drives booms and busts. So far he's been right on the money!

The philosophy here is that you should be paying the community for the resources which you use, but that's it. The overall effect is that it drives everyone to utilise land fully and kills land speculation, and rewards earning (you keep everything you earn). It also makes business startups easy - imagine how much easier it would be to start up a business with no income tax, no GST, no PAYE etc. Just an annual rental bill for the value of the land which you occupy.

Seems much, much cleaner than our current system. Landlords will be punished at the start, but there must be a way to ease it in...

Cheers,

by Allen | 19 Oct 09, 9:01pm

I find it a bit

I find it a bit pathetic Bill English talking about loopholes, knowing he arranged his own personal affairs, by way of a family trust, to be eligible for a $900/week taxpayer-funded accommodation, to live in his own family home!

by Roger Thompson | 19 Oct 09, 9:15pm

Kate : You miss what

Kate : You miss what an incredible forward thinker Dr Don is . He talks of National winning the election , and forming a government . The date at the top of the article is October 2007 ! Scarey .

by John Walley | 19 Oct 09, 9:22pm

The settings we have are

The settings we have are wrong for the productive economy. Change is necessary or our well documented decline will continue.

Change can be painful, as the experience of others has shown; self imposed selective, progressive change in pursuit of improvement hurt less than those driven by external forces,.

If changes have to be forced on New Zealand it will not be fun.

by Roger Thompson | 19 Oct 09, 9:29pm

John : We are agreed

John : We are agreed . But JK seems to believe there is no mandate for change , in the first 3 years of his governance . What to do to wake him up to the seriousness of our situation ? Another 2 years of waiting may be too long . An exodus of our young / bright to Oz . A debt spiral running us into the ground . Re-ignition of the house price bubble . The time to act was November 2008 . The second best time to act is right now .

by Selwyn | 19 Oct 09, 10:30pm

Kate Says: â€œAt introduction of

Kate Says: "At introduction of CGT exempt all current investment so that CGT is not retrospective (as Australia did)" "“ fascinating "“ reward yesterday's speculators "“ punish tomorrow's.

Sounds like a boomer inspired policy to me!

Kate, not at all. We want CGT and we want it now as its broader and demonstrably more fair system while helping to rebalance towards productive investments. The issue is how do we get it in"¦..So I studied how Bob Hawk got it in over the ditch. "Political suicide" was what they said over there as well but he used these compromises to get it across the line which is what matters.

All changes have someone losing and that's just a fact of life. I have no time for property speculation and see it as a scourge on society but it is actively encouraged by our tax laws and so a great deal of people are involved and entered into what amounts to a contract with the New Zealand Government i.e. "if I do this you will do that" so it's hard for any government to stand up to that level of outrage if they change it. My heart bleeds for both parties of course but I am also a realist.

Let's take a process that has worked and get on with it.

by Kate | 20 Oct 09, 5:45am

Selwyn, easy solution which provides

Selwyn, easy solution which provides equity for all. Give the introduction of the CG tax a forward date for coming into force - say one year. That gives all those property speculators whom you see as a scourge on society the opportunity to get their tax shelters on the market and sold as a means to avoid the tax. Might serve to bring prices back to a more realistic level for the present non-homeowners locked out of the market due to the wildly inflated prices.

by Wally | 20 Oct 09, 6:31am

Kate, opportunity is exactly what

Kate, opportunity is exactly what English handed to the party delegates when he warned them of what was coming!....but because National are not secure in their voter support, they intend to carry on allowing the fun and rorts to continue as long as they deem it to be vote positive. The prospect of support from families discovering property becoming affordable...is a thing for the future...unlikely to arrive in time for Nov 2011...whereas support from property owners who borrowed to the hilt to pay far too bloody much for wooden sheds, is a 'here and now' situation and very much likely to kick the govt in the bum come nov 2011 if they move to remove the rorts before the votes are counted. So.....no change before the election is done and dusted!!!

by Les Rudd | 20 Oct 09, 6:40am

Kate - interesting idea. There

Kate - interesting idea. There are two challenges, 1) introducing CGT at all, 2) doing so in a reasonable way - that doesn't bring the house (of cards) down around our ears. Therefore some form of phase-in arrangement needs to be addressed, and this could be done, so long as there is the will for the first challenge. Personally, I like the idea of both CGT and a land-tax, to help phase in effective asset/capital taxation - horror of horrors, yes two more taxes - so long as it led to a lower (flatter) rate for corp and income tax payers and therefore increased motivation toward productive activity to regain a balance with our skewed motivation for passive investment in unproductive assets.

by Kate | 20 Oct 09, 7:02am

Exactly Les, but don't forget

Exactly Les, but don't forget lower taxation on interest on savings/deposits is needed as well - after all, it is the domestic savers who we will likely need to look to to provide the equity to fund future capital projects here.

by Les Rudd | 20 Oct 09, 7:28am

Kate - another good point.

Kate - another good point. I'd be keen to see 'winning behaviours' incentivised at the firm level as you know, and saving is definitely a 'winning behaviour' at the national level. I'll try to remember this when I'm Vice-President. Cheers, Les.

PS - I will also tax gummy bears really hard. (Anti-diabetes measure.) But remove tax on single malts. (We'll get RT's vote one way or 'ther.)

by Roger Thompson | 20 Oct 09, 7:38am

We are still facing the

We are still facing the core problem , of a bloated government , which consumes 40 % + of our GDP . Given that the wastral socialists got us into this pickle , you can tax the red gummy bears , Les , but give the blue ones another chance of redemption ............... But get on with it gummy guys , or it's heads off !

by Terence B | 20 Oct 09, 8:14am

Blah Blah Blah. By years

Blah Blah Blah. By years of pretending that you can pluck the goose endlessly - the goose is dying. We would be better off with pain in the short term. Dump armies of uncivil servants - pay them to bugger off and make a job. Never do I read in Bill's plans of any radical downsizing of government. Forget raising more taxes lets just plain lower the cost of government. But weakness and self serving will win the day and yes its heads off. Capital flight into low tax regimes, purchasing hard assets such as gold is the super plan for the future. Move while you can fellowschmuks.

by Ray | 20 Oct 09, 8:22am

Wean them off slowly, eh

Wean them off slowly, eh Wally?

by AndrewJ | 20 Oct 09, 8:50am

In Farmer terms,the govt should

In Farmer terms,the govt should be symbiotic but has turned parasitic,eventually they will consume the very life blood of the country.

by W. Kunz | 20 Oct 09, 8:58am

Les, John, Roger, Selwyn you

Les, John, Roger, Selwyn you are all dreaming - where does the money come from ?

by Roger Thompson | 20 Oct 09, 9:01am

Walter : For the Gumnut

Walter : For the Gumnut , us schmuks ............ For the gummy bears , nanny ............Kind of the same thing , really . Trust Nanny Helen , she knew best .

by Selwyn | 20 Oct 09, 1:34pm

W.Kunz says...where does the money

W.Kunz says...where does the money come from ?

What money are you talking about? I think I have missed something. Sel

by Kate | 20 Oct 09, 2:45pm

Terence B - redundancy payouts

Terence B - redundancy payouts are a great source of bonuses for, in particular, the Wellington-based civil servants; as they normally get re-hired quite quickly by another government department. Their bureacratic skills and experience are highly transferrable - especially if they ever carried the title "policy analyst"!! And when in the recruitment game, we used to shake our heads at the fact that in most cases, not only did the taxpayer foot the redundancy cheque, but also the hefty (re)recruitment fee!

I don't know if there would be any brave civil servants who read this blog that would be prepared to admit it - by my guess is on average the CC with 20-25 years of government service will on average have been made redundant (and re-hired elsewhere) at least twice in their career.

by W. Kunz | 20 Oct 09, 3:10pm

Selwyn, Les, John, Rogie, I

Selwyn, Les, John, Rogie,

I think in the current situation the government is financially stressed and doesn't have much leeway for any reductions of taxes - rather the opposite is the case. Certainly a shift of taxing in favour of exporters helps, but in my opinion only fundamental changes in our economy have long term positive affects for NZ.

..please read my new article:
http://www.interest.co.nz/ratesblog/index.php/2009/10/15/bernard-hickey-...

Walter

by Wally | 20 Oct 09, 3:25pm

The true function of the

The true function of the civil serpents is to arrange all the red tape and BS in such a way that when the new fools enter the Beehive they haven't a bloody clue whom to ask about where what can be found with why and how to do it. The Sir Humphrey trickery has the Beehive fools utterly confused right up to the day they get the boot and another set of idiots arrives. Any attempt to extract the serpents from the money trough would bring the establishment of a new govt department with several thousand staff to draft the paperwork and arrange the extraction process in such a way that before the plan could be started, the idiots in the Beehive will be on their way and the fools about to return.

by Roger Thompson | 20 Oct 09, 4:19pm

Walter : I'm not arsking

Walter : I'm not arsking for the Gumnut to reduce taxes , not at this juncture . I am insisting that they cut their spending ! I am . Are you ? Les , you cutting back a tadge , home brand b'beans instead of Watties ? Why the flipping heck is Jelly Key not rolling with the waves , and paring excessive , unproductive Gumnut wastage . And ACC too . Alot has been tacked on , over the years , by successive Gumnuts , which goes beyond the original concept . Let us get back to the essentials , and drop off the fripperies , and electioneering bribes . We need a focus on the bare essentials ........ and unless I can get some Rio under-daks , my essentials are gonna be altogether too bare .

by Kate | 20 Oct 09, 4:35pm

RT - I found whilst

RT - I found whilst in central government that the most effective way to trim government spending was implemented by Winston Peters when Treasurer. Every departmental Vote had to cut its operational budget/Vote by 1% per annum. And we did it successfully for (if I recall), three years in a row.

Any new money for specific projects had to be applied for via an arduous process - and you still had to trim existing expenditure by 1%. Most new money proposals got turned around with a 'no' by the CEOs - and a recommendation that they agreed the initiative was a good idea, so 'could you please find a way to fund it out of your existing (less 1%) expenditure budget'.

I loved it. There was an incentive to reduce expenditure, whilst also finding a way to make provision for any pay rises you wanted to award during the year. The amount of fat which can be trimmed without even needing to pay out on a single redundancy was amazing. What I dislikeded was the reprimand you (not from the Minister, mind you, from your departmental hierarchy) got when you weren't tracking to spend everything you had been appropriated.

by Roger Thompson | 20 Oct 09, 4:42pm

Kate : I am not

Kate : I am not one for arbitrary goals : " Rally together team , we're gonna cut 1 % per year " or whatever . I am for commonsense . Some things , such as the Family Commission need to be dumped , 100 % , now ! Commonsense , huh , take each line of Gumnut expenditure on its merits . Maybe some should be increased , cancer treatment , perhaps . Rather that than " WFF " , interest free student loans , etc . My mistake at times for shooting from the heart , but I value human lives more than I value buying votes ............ Gonna sob quietly now . Where's the bag of gummy bears ?

by Les Rudd | 20 Oct 09, 4:50pm

Walter - read the article,

Walter - read the article, Bill English has described where the funds could come from. One target of the TWG is to be revenue neutral. Rebalancing tax take more toward, presently, untaxed unproductive investment in passive assets, and away from productive activity associated with income and corp. taxation will facilitate, "fundamental changes in our economy [that] have long term positive affects for NZ." Also ADD in some prudent management of public sector spend and so much the better - even lower tax burden, BUT, a major driver of "fundamental changes in our economy [that] have long term positive affects for NZ." will be rebalancing the tax take - and if there's quid in useful, productive 'green' orientated projects, products, there'll be more chance they'll stand in the market.

Roger - I don't do beans.

Cheers, Les.

by Roger Thompson | 20 Oct 09, 5:05pm

Les : Cost and health

Les : Cost and health benefits cobbled together , and the humble baked bean is outstanding ! Along with Vita Brits , whole-Grain bread ( un-folated ) and the standard glass of H20 .......... the staff of life . I add a teaspoon of Indian curry powder to the beans , bang-zap-ka-powie ! You get flavour and flatulance to burn , in every sumptuous mouthful . Bon appetit , Monsieur Rudd !

by W. Kunz | 20 Oct 09, 6:02pm

Please, Rogie when commenting my

Please, Rogie when commenting my articles do it in correlation with others I have written.
I wrote earlier: The situation is now so desperate - we rather have to shrink for a while then expand.
Of course that is valid for our economy, but even more for the government/ councils. They are still stupid enough to spend unnecessary money.
(Today's example: In stead of shrinking the parliament numbers/ parliamentarians seizes ;-) or at least lower/ freezing salaries they talk about a referendum of MMP "“ just ignorant of the situation)
--

Good on you Les going around the circle without adding new ideas.
Walter

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by Jacko | 20 Oct 09, 6:53pm

@Roger Thompson, as I submit

@Roger Thompson, as I submit this comment it's approx 20mins since 'Tax Jobs' popped up, c'mon, where are you?

by SORE-LOSER.. | 20 Oct 09, 7:09pm

Here is Another tax Loophole

Here is Another tax Loophole BILL and a reason why it should be slammed shut.

Sorry to SHOUT...there is a lot in this one, so bear with me. This is ongoing.

Symptomatic of what is wrong with ALL the rorts in the health system.

Just one simple example. BILL...

Plain ENGLISH...too....but it seems I have shout...

I will spell out the KEY points as we go.

Opposition must have really taught you something.

Now it is time to ACT. ...LABOUR-ious it maybe, but in the NATIONAL interest.

Got yer ATTENTION....

A friend has a mother aged 90+.

Paid her way all her life... was actually a teacher...and a good one. Went through all the hard times, war, etc.

Had a bit of money saved, as the frugal are wont to do, especially those who endured hardship during the war, when her husband was away fighting.

So the REST HOME takes up most of that savings on a weekly basis, as little INTEREST now...and guess what they take her pension too.

She is now ill and the REST HOME is taking even more, till the PIPS squeak.

Expensive care....and how.

An example is 70$ PW to give her her pills daily.

YES 70$. for a caregiver on basically minimum wage to pop in for 7 X 5mins===== maybe 35 mins per week.....TOPS.

Being generous at 20$ per hour....maybe $11.50.

They are in a BLISTER pack, so probably HALF THAT TIME actually.

NOW......Contrast this to another patient who has approx 8MILLION in a trust fund.

She pays nothing for the REST HOME whatsoever, care, pills, accomodation, whatever.....

All subsidised by the TAXPAYER.

Completely free mind you, NADA, NOTHING, NOWT, ZILCH.

Contrast this with another lady who has NOTHING saved, was profligate all her sorry life, drank, drugs, dole, bludger, hospital case due to smoking, etc etc...

She also has nothing to pay too, care of TAXPAYER.

FARE DUES...which one is FAIR.

No wonder I SHOUT....

WAKEY WAKEY NZ...

TRUST ME. have I got a TAX-LOOPHOLE FOR YOU.

You as men and women with fine sensibilities will understand this one, with yer fine intellect and RORT attuned RADAR....

Maybe you had a MOTHER...which one was yours.??

by Roger Thompson | 20 Oct 09, 9:20pm

HMMMMM , Gummy Bears ..........

HMMMMM , Gummy Bears .......... Sorry Walter , did I miss something ? Must have drifted off . It's me , not Les that goes around in circles without ideas . Havn't got a clue . C'mon Tax Jobs , bring it on , we got Jacko to give you whacko , you dingbat ! Actually , I was having a nice snooze until some sore loser started shouting . Tap the keys quietly , dude .

by SORE-LOSER.. | 21 Oct 09, 6:51am

Roger, Sorry, go back to

Roger, Sorry, go back to the Gummy Bears..and hit the snooze button.

It was not you I was shouting at.

It was not tapping of KEY-BOARDS. that woke you.(there I go again).

In Plain ENGLISH... it was the tapping of pigs-trotters heading back to the trough.

Must be HELL-en, CULL-en them wild........ BORES.

by Les Rudd | 21 Oct 09, 7:16am

Walter - why the call

Walter - why the call for new, different ideas? Can you say what is functionally deficient in those already presented? Why can't they be implemented?

No offence meant, but you seem to think in a similar fashion to many NZ politicians - when they hear what is common sense, and what would work from people who know what works, and are actually involved in the work - because it does not suit their agenda (obsession, dogma, politics, pet-projects), they ignore and search for easier, self-gratifying, politically safe, agenda-supportive options.

There is little point tinkering around expending energy on developing "new ideas" that are very likely to have low impact (if any*) instead of grasping the nettles that need to be grasped. It's better to stay on message and stay focused rather than cave at the first sign of political resistance, this is why the likes of NZMEA and PEC are independent of political interference and continue to challenge the 'status quo' rather than go with the flow:

http://www.interest.co.nz/ratesblog/index.php/2009/09/24/exchange-rate-r...

*Especially if a centrally planned approach is mis-applied, where a more pluralistic approach is warranted.

Roger - John Walley has described a cracking idea about reducing public sector spend, shame we'd not implemented it a few months ago:

http://www.interest.co.nz/ratesblog/index.php/2009/10/20/opinion-kiwi-wo...

Cheers, Les.

by Roger Thompson | 21 Oct 09, 8:32am

Splendid idea . Missed that

Splendid idea . Missed that one , yesterday ( on nightshift ) . One niggly naggly doubt , Les , if pollies are paid in $US , don't we risk deliiberate devaluations of the currency ( a'la Rob Muldoon ) annually ? Well done John W. , neat bit of thinking , all the same ! You get the precious blue gummy bear .

by SORE-LOSER.. | 21 Oct 09, 8:47am

Nah, just pay em in

Nah, just pay em in deferred New Zealand money, but ONLY on RESULTS.

Wouldn't be paid a bean in my Organisation, without that.

The World would be a better place if the Wages and Bonuses paid reflected reality, not rorted theft via bent rules.

by Les Rudd | 21 Oct 09, 9:14am

Walter - Liam has also

Walter - Liam has also highlighted the areas government needs to look at to fund/square rebalancing the tax take:

http://www.interest.co.nz/ratesblog/index.php/2009/10/20/housing-report-...

Not so "new idea" - just stop the systemic rorts.

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