Yes, flat & simple and include all government income adjustments including the dole, benefits, clawbacks&abatements in the one calculation.

e.g. if a single adult earns X in a year then they end up with Y:

X Y
0 10000
10000 16667
20000 23333
30000 30000
40000 37500
50000 45000
60000 52500
70000 60000
80000 67500
90000 75000

Fiddle the numbers to make them work to your satisfaction, but something like that.

Flat sounds good, as long as we keep the current simple tax system or make it even simpler. No exceptions and special cases, that just leads to a European/US style mess where you need accountants and tax software to make sense of it all.

Get rid of the working for families tax. We need to get the incentives right. If you work more, you already pay more in taxes, no need to get hit twice by a higher tax rate as well. So flat sounds good. Don't penalize people for working. And we need cutting of spending of course. Borrowing for tax cuts is nuts.

Fair go, can't you lot smell the smoke! You don't really think any govt would part with their best vote buying weapon ever. Come on , get real. It's no more than a diversion and an old tool to keep the peasants happy arguing while Stalin drives a tank over the top of them all. Yes GST will rise to 15 or 17.5% post the 2011 election. No there won't be a tax on capital gains because it costs more to administer than it returns. Think about the tax claims that would be going in now for the capital losses made in the last financial year! And a capital gains tax would hit the govt where it hurts the most, right in the political donation account.
A flat tax? how flat when the fiscal deficit is going to be near 50 billion. Another pipe dream to keep peasants busy thinking they are actually living in a democracy.

Like you ideas Bernard, but please note:

"The aim is to identify issues that need to be considered when reviewing medium-term tax policy, rather than to make specific policy recommendations. Topics to be considered include the fiscal framework, and the structure of personal income tax, corporate tax, GST and tax integrity."

Forgive my cynicism but I wonder if the facilitators of the recent 'Jobs Summit' may not have been given a similar kind of brief, that is, let's talk, but forget changing policy guys and X, Y, Z is off the table - as I see no mention of inclusion of trust and cap.gains tax here? Or maybe that get's swept up in "tax integrity" somehow?

Bernard, am in agreement about not picking winners, in terms of firms and sectors, however, see ideas described here regarding a more pluralistic approach about supporting 'winning behaviours':

http://www.interest.co.nz/ratesblog/index.php/2009/04/15/opinion-how-tou...

I am interested in you comment/opinion on the idea of supporting 'winning behaviours' to nuture the wider productive sector? (You may want to check various research papers on the NZMEA website to see if this approach works in other countries.)

Plus, if we go flat and base lower, without appropriate 'winning behaviour' incentives (as I have described) might we not end up in the scenario I discuss in my comparison between UK, US and NZ economy, in terms of dimensional influence in the relative investment landscapes?

In any case, will it go the way Wally suggests at May 8th, 2009 at 7:25 pm above.

What has changed, really, since....

http://taxpolicycenter.org/publications/url.cfm?ID=1000569

Quote from here by then Min Fin in response to OECD's CGT's recommendation:

"˜Extreme, socially unacceptable and economically unnecessary' was the New Zealand Minister of Finance's reported response. "The Government is not interested in a capital gains tax, either in the short or the long term. Basically it is political suicide in New Zealand," the Minister's spokeswoman said.

?

Anyway, it's not as though we've not been here before - with similar people it seems:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=200051

maybe, "just as a matter of process"....... deja vu....

Will it go the same way as the recent review on monetary policy - stick with the status quo, change too costly to implement - albeit without any cost/benefit analysis....

If not, tell me why not?

We need a 25% tax on capital gains for all assets, including property investments (as opposed to our own homes). We should avoid exemptions

Sigh - and there you've created one exemption already. To create a truly level investment playing field, the family home also needs to be treated as an investment (it is) and any gains on the family home should be at the same rate as any other capital gains.

The reason? This is needed to force people to think about whether they should purchase a house, or invest their money into (generally) more productive investments such as a business. If you don't have captial gains on family homes, then that immediately creates an unfair investment advantage for investing in you (unproductive) home first-and-foremost, and leaving more productive forms of investment till later.

I agree that we should avoid exemption ;)

Captial Gains should be just like GST and income tax - flat rate, and same rule for everyone. Just like a threshold on income tax however, there could be say a threshold on Capital Gains whereby the first $200-$250k of investments (whether property or otherwise) are not liable for Captial Gains. Whether you choose a house or shares, everyone has that same threshold for which no Capital Gains are applied. If you have a house that worth more than the threshold then tough, you'll be paying some CGT on it at the end of the year.

Bernard
You can't wack a capital gains tax onto everything exempting your own home. It costs far too much to administer and you will need even more beaucrats to follow it all up. In any event, if you exempt the family home, property investors will move into houses before selling them to get around this loop-hole.

Increase GST to a level of 17.5% over the next five years. This tax is transparent and people can avoid it if required. People are price sensitive, so luxury items will cost that much more. Following Britain's lead and making food stuffs GST-free is not an option. It makes the whole system hard to administer and collect revenue.

The top tax rates can gradually be moved down to 33%. Any quick movements will totally distort the markets. Leave all the rest as they are until the top tax bracket is back at a more normal level, where you are not penalised for earning more.

Do not introduce a tax-free threshold for low income earners. Everyone needs to feel that they are paying their way to make this country work.

Reduce company tax over the next five years to 25%. This will create more savings and investments into PIE funds due to the tax advantages.

Introduce something similar to the ISA accounts in Britain. Every Kiwi resident will have an allowance, say $5,000, which is tax free for investments, whether through a depository institute or managed fund. This will encourage a savings culture and lower our reliance on foreign debt for funding. It will also move people away from the totally unsustainable property investment market.

Act two scene one. Sir Humphrey enters.
"Well Sir Humphrey, nothing like a strategic review to keep the peasants busy"
"Jolly good show I say, keep the buggers busy while we get on with it"
"You don't think we will have any trouble then?" Hacker looking doubtful.
"What, with all those highly useful contributions to deal with!" Sir Humphrey said.
"I enjoyed that bit about informed tax policy discussion that can feed into advice to ministers and wider public debate" said Hacker
" Yes, almost as good as the bit about All this would require consensus "
Scene ends with Hacker and Sir Humphrey laughing like hell.

"One of the group's members, economist Gareth Morgan said another option was to widen the tax base, possibly with a capital gains tax, so a rise in gst may be averted.

"I would not rule out capital gains; it has to be considered again," Dr Morgan said.

The distortion towards investing in housing had been partly tax driven, including all sorts of "tricks" such as LAQCs ( Loss Attributing Qualifying Companies), he said.

"It is fairer to everybody if you can get the tax base as wide as possible," Dr Morgan said. "We all get hit a little."

Dr Morgan said the era of government surpluses was over, so the Government needed to have confidence in a tax system that has "a wide base and low rates" and was as neutral as possible so people did not make investments based on tax considerations alone."

Personal tax cuts on table [Yay!]

http://www.stuff.co.nz/the-press/business/2397019/Personal-tax-cuts-on-t...

Well said, but keep the poly's away from the brake cables on your bikes.

Act 2 scene two.
Sir Humphrey and Hacker are both still in a fit of laughter with tears running down their cheeks.
"Oh dear me I must stop this Sir Humphrey. It can't possibly be this easy to distract all these academics and bloggers"
"But that's the wonderful thing about our academics Minister, they cannot resist having a say, they are like bees in a flower patch, they can't stop themselves.
We must encourage them Minister"
"But we don't have to, I mean actually take their advice do we? "
"No Minister of course not. We know what the real policy decisions will be but we must let them think they have been instrumental in determining govt policy adjectives.

The only system in my opinion that will work without exception of no one peson or company escaping paying tax is to tax the dollar 12% when it goes in the bank .
When its taken out of the bank Tax it again at 12%

Wally - excellent humour, love it, keep it up. (I think your next scene needs to include Sir Roger though...)

Re. the perception that it's fairer that we reduce personal, corp. trust tax say, and 'broaden' the net with increased GST - sure but doesn't that still leave 40% of us subsidising 60% of us who are not paying tax on capital gains?

Yes.

So include CGT, unifiy the rates, increase GST and see if the unified rate goes below 23%?

Could we get it under 20%?

Maybe even the "60% of taxpayers worse off" would not be so fussed then?

Bernard

CGT already exists, it is not enforced and why is that? because the judgement is subjective, "Did you buy this house for the purpose of capital gain" and if the IRD did start trying to enforce it and establish case law just see the pro bono lawyers fly out of the woodwork!. Its so blatantly flaunted Reality TV is made about CG on houses

Neven

Selwyn, Farmers do pay GST on the sale of the farm. They contribute hugely to the productivity growth of the country. If captial gains tax is introduced on farms, then the GST has to go. The unproductive speculative investment on old houses must be discouraged. Only new houses pay GST and not the old ones when resold. All business assets pay GST when they sell. Why not residential houses? There is a clear tax advantage on housing investment. Either a GST on the residential house sale or a CGT must be introduced, and I think this is fair.

Stop taxing savings.
Disallow non-residents from buying residential property.

Oh thats "us" as the NZ public, sorry.

And CGT does exist to a degree on any investments held in the grey-listed countries e.g. US, UK etc. Right now we are having to pay unrealised capital gains on some foreign investments. Here I am trying to grow my NZ wealth by investing responsibly internationally, but I'm getting taxed on gains I haven't even made, and home-owners pay no tax. That is not simple and fair. Tax must either be all on, or all off investments. The alternative, and one I would be quite happy with, is no tax on investments (investing is a good thing), and up the tax on consumption through GST (consumption is a not so good thing). Somehow I don't see some politicians with certain philosophies liking that approach very much...

Peter Dunne working to come up with some new ways to tax our pants off.He and Cullen dreamt up the buyers of overseas shares be taxed on profits or losses ,what a fiasco that has turned out to be.I hope Billy and Johnnie check out Dunne and Cullens overseas share scheme that even the computers of Nasa would have trouble understanding.

Funny circular argument of capital loss! A company goes bankrupt if the capital is lost. If they make a loss they don't pay tax. If there is no income, then you cant expect tax to be returned (have to go on doll). That is why the tax is aptly called capital GAINS tax.

Wally - have you been getting your screen plays from here?

"New Zealand Tax Reform - Where To Next?" February 2009.

http://www.treasury.govt.nz/publications/informationreleases/taxconference

(Worth a look all.)

Will have an interesting new character for your scenes soon.

Ashley, your question is like asking to abolish the income tax totally because it does not encourage someone working and earning. The issue is the existing tax base is not fair and wide enough to generate enough income to the Government. There is no point in increasing GST or income-tax. The extra income for the governmental spending has to come from somewhere, right?

My last comment may have been a bit off the topic so here is something about tax. A difficult topic with no easy answers.

20 20 20
No way, it will never work? Ok so it won't work. You tell me. How does it work. It tuns out that 39 33 21 12.5 is the right answer. What was the question again? You don't know? Heck of course you don't know. Why should you know, most people have absolutely no connection with the tax system at all. They get their pay - after tax, and they buy stuff with the tax built in. It's easy. Tax is invisible, it really has nothing to do with them. It has to do with the other people, people that have to deal with tax. and these people work at it , they really do . From banks that negotiate the amount of tax they will pay - to airlines that sell the depreciation rights for their aircraft. They can have the same plane owned in three different countries by three different entities and then depreciated in those three countries for this they get a fee. this is one plane mind you for tax purposes there are three planes but if you want to fly there is only the one. The worlds is split into three groups, people who don't have to deal with tax at all , people who do deal with Tax and people that tax deals to (more about them later) . For the people who don't have to deal with tax the question is always, so why don't they just pay there fair share like I do . Do you , you don;t really know how much you pay or what it goes towards or almost anything? You may actually believe that 30 33 29 12.5 are the right answer. It might be or they might not - who knows?

So a lesson in tax.
1. Governments need money, lots of it , they need money to do a lot of really important things and a few not so important things, how do they know how much they need, they don't really, what they do know is how to take as much as they can get away without people squealing too much. Loop holes may really just be a way for people who could make a whole lot of trouble for the government to have a way out and so not bother.

2. The people of a country need to know that they actually pay the tax that pays for the running of that country- and that they get to pick who they want to run the country that uses that tax money to run the country with, That is how it works. or that is how it doesn't work. you see governments actually don't really want you to be too connected with the tax system, after all if you were connect with the tax system you might be inclined to question what they are doing with your money and we wouldn't want that would we.
So they almost eliminate direct taxes for a very large proportion of the population and get evything they were going to get anyway through indirect tax. Fine I happen to like indirect taxes . GST seems to me to be the best of the bunch in so far as how it is administered. It costs the state almost nothing to collect and it doesn't take too long to calculate and administer at the company end either.
The trouble seems to be that the people who don't interact with the tax system can be roused into a frenzy by politicians at the mention of a change in the structure for fat cats and corporations etc.

You've got to speculate To accumulate.
Success in New Zealand is driven by the tax system, It has been about speculation and borrowing/leverage for years why? That is how our tax code allows us to make any money above what it costs to live on.
Step 1
Borrow a lot, banks will only lend on property - really they do, even when they lend to a business they really only lend against property unless you are a really big company maybe. Anyway so you borrow a lot and then hope like hell that the value of what you bought is going up rather than down and wipe you out completely. Then the money you make is a capital gain and is free of tax- if you do this a lot in your own name then you could be considered a speculator and be taxed but it is a remote chance at best , each transaction can be a different entity with different technical owners or something.

Step 2-There is no Step 2
Speculating is basically how most nzdrs who got rich over the past 15- 20 years did it. It worked for them but, and it is a big but, it doesn't make us as a country any richer, we have directed all of our entrepreneurial spirit into speculating on land thats it. How dull is that . Meanwhile we are slowly but surely still going broke.
Why not face up to the fact that the tax system has a major impact on how people who have to deal with tax behave and then actually do something grownup about it.

1. Stop incentivising speculation and disincentivising investment.
example
company 1. never borrows, say it actually makes something. unusual I know, makes a profit every now and then- say 3 out of every 5 years, profit is not smooth, it is lumpy it is real.
company two, is a shell, no people no nothing really it is a vehicle with which to engage in speculation. Debt driven, in and out quick, win big take the profit and run when the money runs out.
company 1 pays tax every year good year or bad - basically
company 2 never pays tax- makes a capital gain tax free and goes easy
who wants\ to run company 1 or company 2 ?

So how do we clean it up.
1. Stop pretending that you can actually punish the rich through taxation, you can't. The rich today, the really rich, the so rich that they can have a major impact on New Zealand rich are not really effected by our tax system much at all. They operate through multinational entities and a combination of transfer pricing, asset revaluation, (especially non tangibles) ,debt and offshore tax havens all working together to make it really hard to pin any serious tax on anyone operating in this space.

2. Agree that we have a problem when we have State Owned Enterprises spending serious money on advice on how to structure themselves to really work over the tax system , I am not going to say they are cheating the system, that would be unfair.

Oh by the way, plumbers pay tax. but there aren't many multinational plumbers are there. So the tax system doesn't work well for people who have to deal with the tax system who aren't speculators and who aren't mulitnations. There are a lot of these people, These are the people that the tax system deals to. Usually small to medium size companies, the ones that employ most of the poopulation, they don't have time to bend the ear of government and they don't have the income to buy their way out of trouble. Oh and they actually live here.

3. Agree that we are the ones who have to pay for our country, the ones that actually live and work here.

4. Agree that keeping the tax system simple will probably be the best thing for everyone except tax lawyers and accountants. Why is it by the way that we let these people have such a big influence on our tax system , it is obvious tha they make most of their money as a result of the complexity they have helped to create. If we make it simple they simply make less money, it really is not in their interest to do anything about it except fiddle around the edges.

5. Agree that the current system discourages business ownership by New Zealanders and encourages offshore ownership or debt and most commonly both at the same time.

When you sell a business you are effectively selling future cash flows, so if you sell you don't pay tax on these future cash flow you have been paid for, as it is a tax free capital gain and ifyou keep it the business and continue to generate the cashflows yourself and get the income directly you do pay tax- wierd isn't it.

6. Give up on the whole idea of FBT- it is a joke idea that didn't work . Or maybe not maybe we make it work by just calling it what it is income and taxing it at our new flat rate.

7.Give up on depreciation. write off the cost in the year you spent it ,it is the only way. why. the whole idea of depreciation doesn't work It encourages debt financing vs equity people especially accountants can argue about this point
1. You have to buy the thing with either cash or borrowings. Depreciation as it is tells you to borrow to buy or lease or some other form of financial engineering rather than just buy it if you can afford it. If you actually can't afford it then borrow the money for that reason alone.

The tax system discourages equity and encourages debt. Today we now know that cash is king and debt is bad, I say we know this, maybe everyone except the people running the tax system know this. So we need to rework the system to encourage equity not debt, New Zealand ownership not foreign( who owns things actually matters , but you aren't meant to say so)

Step 1
Give up on depreciation. write off the cost in the year you spent it ,it is the only way. why. the whole idea of depreciation doesn't work It encourages debt financing vs equity
1. You have to buy the thing, let the company buy it out of cash, and write off the whole expense in the year than they spent it, what does it matter 20% 25% a year its all just silly

Step 2. Allow retained earnings to be tax free when reinvested in the company - see point 1 above.

Step 3 make the company what it really is a vehicle , make it a transparent one, (really big windows, a bit like a pope-mobile). Make sure that tax is paid in full here when the company gives money to its workers and to its owners whether they live here or not .

Step 3 Use the existing rules to work on speculation and speculators profits - why because they are not really outside the system, they have a major distorting effect and they are simply not fair and encourage people to speculaterather than to wor at something . o do this you have to mean it.

Step 4 explain the rules to multinational corporations so that even they understand them.

Step 5
20 20 20
Maybe move to 20 percent income tax 20% GST and 20% personal Tax It looks simple enough. I am sure that it is wrong, but if it is wrong why are the exisiting numbers so right? Shouldn't the numbers really be about how much we need to pay for the sort of society we want? Shouldn't people know how much tax they pay or don't pay.

They move the money out of NZ they get taxed at the current rate ( by making this rate a sensible attractive rate the chorus of complaints will be muffled . So whether they are paying off debt or IP cost , licensing fees, Administration costs from head office or whatever, if the money leaves the country tax is paid. Simple.

By doing these things we will stop the massive advantages of debt over equity. Of speculation over investment. We may even start to dig our way out of the hole we are in. ( I think that we don't know that we are in a hole because we have been there for so long and the view is not so bad, but it is still a hole).

Bernard your interview this morning on Breakfast sparked these comments as some very traditional banking views where put across by you. I have attempted to review what foreign banks like and don't like with regard to New Zealand and what we need to do to protect ourselves from the extremes. Some of this falls squarely into the proposed tax review but the solutions are broader than just tax.

"¢ They love our monetary policy being linked exclusively to domestic inflation
"¢ They love the way the OCR goes up as inflation goes up
"¢ They equally like the fact that as the OCR goes down they can disengage in the process at any time they want and increase their margins (as they have)
"¢ They love the fact that an increase in the OCR takes the exchange rate up with it
"¢ They love the fact that no one can tell them who to lend to within New Zealand as we have now with businesses starved and housing getting all it wants
"¢ They love the fact they can introduce or withdraw capital from New Zealand at their discretion
"¢ They love New Zealander's childlike affair with property as it keeps the inflation cycle well and truly on track and keeps politician fearful of changing anything above
"¢ They love the fact that break fees apply to them but not to us. We break and they are in the money and they keep it.
"¢ They love the fact there is no legislation in place around bank fees to protect consumers from pump fear and fix behavior
"¢ The love the power they have over our politicians as our huge deficit means governments will fall if banks withdraw their capital from New Zealand

In every regard I am opposed to the above on the grounds that I want New Zealand to regain it's Economic Sovereignty from Australian Banks
"¢ We must control not just the price of money in circulation but the quantity of money on circulation as that's what causes inflation. (Fact: as the OCR went up in the last round, money in circulation increased not decreased)
"¢ We must remove the temptation of FX traders within the banking sectors from manipulate our economy to their advantage. (New Zealand has the second highest traded currency relative to GDP in the OECD simply because our small economy and our monetary policy plays to the traders ability to manipulate our dollar)
"¢ We must retain a well funded local bank and use it as a macroeconomic tool to prevent good businesses going to the wall and making us further indebted to foreign favor as a result
"¢ We must naturalise the tax bias around property and put a positive bias into savings and investment into the productive economy
"¢ We must break the link between domestic inflation and destroying the export economy via an increasing OCR which increases the NZD while we actually fuel the inflation with imported capital

You see Bernard you can't judge these things as right or wrong on an economic basis but it's bloody easy to judge them wrong on a sovereignty basis. So I think the debate now is do we want to be a sovereign state or sell our selves to Australia brick by brick. Your comment re monetary easing is interesting as banks would hate it with a vengeance but actually when they won't lend to the productive sector but are happy to feed the property market again, then it's probably the most intelligent thing we could do right now.

It would show we are taking control of our own economy and understand without business we have no ability to ever repay our indebtedness. Yes this would be a significant steep but if the best brains in the world have recommended economic easing for the UK and USA then why not New Zealand. I note no one is laughing at the UK or USA for doing it. It's actually very smart on their part as it allows them to bail out their banking sector and that allows the banks to "invest" off shore on very variable terms (to the bank). This will cause a huge positive inflow of cash when the markets turn and a huge lift in the balance sheets of those banks as assets are revalued. Not a bad day at the bank.

There are frequent references to "˜unproductive investment in housing', but little discussion as to why this has happened. The reality is that the normal investment vehicles for your average kiwi are unproductive "“ you simply get peanuts for your investment. Gareth Morgan has written a fascinating series of articles on the mechanisms whereby even the "˜reputable' big-name investment companies fleece you.

You can find the articles here: http://articles.garethmorgan.com/the-great-new-zealand-savings-rort_961.... An introductory snippet:
"In the first of three articles on the results from a survey of New Zealand's investment providers and products, economist and investment portfolio manager Dr Gareth Morgan considers why the Consumers' Institute discovered that investors typically receive around a third of the returns their invested funds earn. In subsequent articles Dr Morgan investigates the reasons for the market failure that perpetuates these losses, what regulators are doing about it, and why it's irrational for the New Zealand government to force even more of the public's savings into the arms of this high-cost, poor-performing industry."

So, with little benefit to be gained by investing "˜wisely', what can you do? Houses are tangible and most Kiwis can quickly learn to do a personal valuation before they invest. They do not have to invest in instruments over which they have no control, nor any understanding of how they work. Indeed, it has become patently obvious that the investment advisors to whom investors are supposed to turn to for trusted and professional advice, frequently have no knowledge of the inner workings either.

So, perhaps the answer is not blunt capital gains taxes trying to force your investments down an unproductive path, but more regulation which forces transparency on where, and how, your money is being invested "“ and what it is actually costing you. This is likely to improve your returns "“ investment companies which gouge investors will have to change or die.

Picking up on Steven's input May 9th, 2009 at 8:25 am and referring to Roger Douglas' tax reforms; some say our countinued reduction in wealth shows the reforms and thinking did not work; others complain it's because we didn't go far enough. Whatever....

Is it not the case though that the reason NZ has become less and less wealthy is because what we produce has become relatively worth less and less over the years? Nothwithstanding the recent soft commods boom, or blip on the downward trend. Sure we hope to see a long-term resurgengence in soft commod prices, but nonetheless could we be heading for a future where some in NZ might no more afford the food produced here, just as the Chinese labourers who make our LCD TV's and DVD players cannot afford them? A stark comparison and slightly unnerving thought. But ask yourself, what things can't we afford now, and what might we not be able to afford in 5, 10, 15 years times, if our economy only has the present two dimensions - soft commds and tourism?

Maybe we shouldn't bother ourselves given:

"Kiwis happy despite lack of wealth - OECD"

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10570453

However, a sure way of going backwards is to stand still, and it seems this is where we've been. It can only go on so long before that OECD survey result would be quite different, that is, lacking more and more wealth till our great living environment cannot stave off the associated unhappiness that poverty, will, bring.

So, if we do see this as problem, and actually want to reverse it, where ever possible we need to change policy to encourage a solution. That solution is, add more value to what we do already, and do extra things of higher relative value - essentially adding more dimensions to our economy. In other words, develop our productive sector in depth and breadth.

Next question is, what tax system and structure best supports this solution?

It is certainly not what we have now, otherwise we'd not be sliding down the wealth ladder as we are. However, if the solution looks Douglas'ish, fine. If not, fine too, so what - but change is required. Either that, retain the 'status qou' - and enjoy your pineapple lumps* - if you can afford them.

[*TV ad. where 'Kiwi-lad' turns up late as God dishes out world resources at Creation.

"What did I miss?" He ask his Auzzie neighbour.

"Maa'te, oil, gold." Says the sharp suited Auzzie.

'Kiwi-lad' waits.

"Pine....apple lumps." Booms God.

'Kiwi-lad' is first to hit the buzzer as God just gets through the word 'pine' ..... and the rest is history.]

Is this NZ? Can we do better? Do we want to do better? Or what:

"Kiwis not lazy, but aspiration a problem"

http://www.nzherald.co.nz/employment/news/article.cfm?c_id=11&objectid=1...

The usual 'whats' and very little effective 'How2' in this article, not surprisingly given the typical default 'Zero Sum' thinking on productivity (efficiency only focus) and 'wishing' (really, really hard!!) that more businesses will export. Aspiration might seem a problem, because taking the risks to build a productive enterprise really is a problem - it don't matter if you do become a 'picked winner' of NZTE/TechNZ, when the grant support drys up as they change political focus or funding is arbitarily cut, if tax and monetary policy have not matched the realities of the world we live in, the risk becomes all too real - ask some of the 'winners' who can only win now by saying ta, ta to NZ. [Oh you did, that's why your aspiration is as it is....] Essentially the remainder of the productive sector needs the kind of effective 'subsidy' that some sectors in NZ still enjoy, for instance the lack of CGT. Who are they?

What we need is a 'Whole economy productivity' approach and much of the 'How2' for that can be addressed by sensible tax reform, see my earlier posts in this thread and the NZMEA website.

"Pine....apple lump anyone?"

Oooh, Dave ! The accountants will love you. The yearly tax on unrealized gains would be a bonanza for them, and property valuers. Do we need to complicate the tax system any further ? The fact that Cullen instituted annual capital gains/ deemed rate of return tax on offshore investments is testiment to how incompetent Cullen was, not that it was an idea with any merits. Pity that Key and English don't repeal all the nonsensicle rubbish that Cullen lumbered us with over 1999-2008.

Iain : surely the debt debate needs to focus on what the money was used for. For instance, Gumnut borrows from overseas, and establishes a roll out of internet broadband. The growth in the economy will easily offset the cost of borrowing. Borrowing to refinance Kiwi-Rail may not be such a brilliant move. Individuals borrowing for low growth assets, houses perhaps, not so likely to outperform the financing costs. As a low capital-base economy we need access to overseas money. And if we are wise with those funds, no problem......A big "if" !

Les : I am quietly amazed, and appalled, at the number of people who want a CGT. Do you suppose that this is the "tall poppy" syndrome at work. In that they feel it won't apply to them. Only to "rich pricks" (thankyou, Michael Cullen, for the quote ). From my limited studies of it, and first hand experiences in Oz, it is a policy not to be taken lightly........it should be weighted with a big rock and dropped into a lake !

Why further complicate our tax system ? Why pour more gold into the pockets of accountants and estate planners ? So many loopholes and avoidance schemes will be dreamt up. Ultimately the cost to collection ratio will be abysmally high. And capital markets will under-go yet another techtonic shift in knee-jerk reaction to the CGT.

Les,
one for you. Mainly about inflation. On a thread over the last 24 hours or so you made a comment about the OCR. Well the OCR moved in response to CPI changes.....

Consumer Price Index. But no measurement of the increase of debt or asset prices.

http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/a...

"The myth made the Bank of England concentrate only on inflation, and then compounded that error by obliging the Bank to focus only on one kind of inflation. The wrong kind. Whereas the Bank's consumer prices index (CPI) keeps a close eye on inflation in the price of a packet of peas and a bar of chocolate, it overlooks the very aspects of inflation that caused this crisis - all the debt, housing, mortgage ingredients of our present misfortune.

For the past five years "debt inflation" was on average 9.5 per cent a year, nearly five times the Bank of England's CPI inflation target. But where is "debt inflation" in the CPI? Not included.

During the same period, the inflation rate of one asset class, property, was 13 per cent a year, six times the Bank's CPI target. Where is that in the CPI? Not included.

What about the cost of acquiring and holding these property assets, ie, mortgage interest? Where is that in the CPI? Not included.

CPI inflation barely moved. It was irrelevant. It neither registered the huge increase in asset price inflation, nor its huge collapse. "

Bollard's tool, the OCR, is set in response to CPI changes....

Roger - another one for you re. Auz and CGT, if it is such a bad thing, why have so many Kiwi's moved over there?

Les : as for not addressing your questions, look, no offence old chap, but some of the blogs are a tadge long.....Some so long , I think there should be a guards van at the end, and a little man waving a red lantern...........Gotta short span of attention. Need brevity. And a simple style ( surprise to many, But I'm no "brain-surgeon" !!!!!!!!!! )

Nevertheless, before I vague out and lose all consciousness, there are flickers of good sense from your blogs. So keep up the good work me old chummmmmmmmmm---ZZZZZZZZZZZZZZZZZZZZZZZZZ

Les,
Steve Keen has put up a post on the AU budget you might wish to read

http://www.debtdeflation.com/blogs/2009/05/13/budget-2009-lets-assume-we...

I enjoyed the economist joke

"A physicist, a chemist and an economist are shipwrecked on a desert isle, along with a container full of cans of baked beans.

The chemist says that if they can start a fire, he can calculate the temperature at which a can will explode.

The physicist says that she can work out the trajectory of the baked beans after the explosion, so that they can gather the baked beans and eat them.

The economist looks at them in disdain, and finally says Guys, you're going about it the hard way. Let's assume we have a can opener."

Gibber - thanks again. Steve Keen sounds like an NZMEA kind of bloke:

"The Treasury's prognoses on how long this recession might last, and how deep it will be, are no more than wishful thinking"

As we find many NZ policy makers and their pals just are as given to "wishful thinking" instead of sound policy that would make a difference to the prod. sector.

It sounds like Keen would enjoy Beinhocker's book too:

"Unfortunately, guided by neoclassical economics, there's little else that The Treasury can do: according to standard neoclassical theory, this crisis shouldn't be happening. Only when they throw away the textbooks will they have any hope of understanding how the economy actually works."

And as for the can-opener joke, see below a clip from the book review I did on Beinhocker:

"This contrast [between development of the physical sciences and classical economics] was captured nicely in a an exchange between physicists and economists taking part in an cross-disciplinary workshop sponsored by Citicorp in 1987 that initiated various areas of research focused on applying complexity theory into economics via the Santa Fe Institute; a not-for-profit set up with the goal of addressing some of the more awkward problems in science characterised as complex systems. The physical scientists had challenged the economists for continuing to use models that so clearly did not represent reality and were shocked at the magnitude of assumptions made. It appeared as if the focus was not on matching reality, but rather ensuring the currency of assumptions was common across the sub-theories and approaches being used in main-stream economics. Quoting from the book:

"The economists backed into a corner would reply, "Yeah, but this allows us to solve these problems. If you don't make these assumptions, then you can't do anything. And the physicists would come right back, "Yeah, but where does that get you "“ you're solving the wrong problem if that's not reality."

Seems the problem Keen highlights has been around a while; what will it take for them to change?

Any suggestions how we can put a stop to offshore tax havens. The figures are staggering;

Mind-boggling

A few figures help illuminate the rot. Since financial market deregulation in the 1970s, the number of tax havens has more than trebled. Over $600 billion "“ nearly three times today's external debt "“ has leaked from sub-Saharan Africa in capital flight since 1975, almost all disappearing into secret bank accounts and offshore companies in places like Jersey, Luxembourg, Switzerland and London.

The scale of this scandal is mind-boggling. Conservative estimates suggest that the world's wealthiest individuals have parked $11,500 billion offshore "“ allowing them to dodge over $250 billion dollars each year in tax. That alone far exceeds what the UN asked for in its Millennium project to tackle global poverty.

But that is just part of the picture: tax dodging by corporations is much bigger. The World Bank has reported that cross-border flows of the proceeds from criminal activities, corruption and tax evasion range from $1,000 billion to $1,600 billion per year, with half (or $500 to $800 billion) coming from Majority World economies.

The rich countries currently spend about $100 billion dollars on aid. So for every dollar of aid in, five to eight dollars flow out under the table. The tax evasion component of the global sum is by far the biggest, with commercial tax evasion making up $700 to $1,000 billion of the global figure. Historically there has not been such a large gap between rich and poor "“ ever.

http://www.newint.org/features/2008/10/01/can-pay-wont-pay/

Add this from Simon Johnson re the Real Sector becoming economically dominated by the Financial Services Sector;
Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
http://www.theatlantic.com/doc/200905/imf-advice

This article is enlightening in so many ways;
http://www.oecdobserver.org/news/fullstory.php/aid/664/Tobin_tax:_could_...

Check out the histories of the two guys the National Executive have put in charge of just about everything;
Check out the histories of Rob Cameron here, scroll down to one third from bottom, tax inquiry and market task force;
http://socialcreditorbust.blog.co.nz/do%20those%20investigating%20integr...
and Graham Scott, who has just been appointed external overseer of the Ministry of Finance;
http://socialcreditorbust.blog.co.nz/ruth%20richardson%20corrupt%20or%20...

NZ needs tax reform, including capital gains tax, Whitehead says

http://www.sharechat.co.nz/article/31ee0317/nz-needs-tax-reform-includin...

flat 23 here we come.....

tax reform is only required because some are not paying LAQC is one form , ring fencing income for tax purposes can remedy this but is cumbersome. The easiest way is to disallow the cost of money for tax deductions on borrowing for investment housing only. Houseing is a right under the bill of rights so can be treated differently (ethicallly) This lack of tax incentive would create a buyers market for all those who may wish to purchase their own homes. 450,000 homes in NZ are owned as second or more homes. Quite some feat for a country of 4 million.
Investment housing results in NETT tax deductions against all other NZ taxpayers of 500 million. Investment houseing is a loss making business. Investment housing is the only problem that needs addressing and i reccommend that Buckle and co deal to investment housing first then re address tax policy say 2 more years to see if any more policy changes required

Wally is right on. We are being run by academics. Mary Holm, a mamber of the task force has never run a business in her life. She has immersed herself in economic textbooks mostly written by Marxists and jealous and broken men who hate people who make things and grow crops to sell for food. She believes that investment property is not a good way to go and that we should be putting savings into the bank at about 5% gross and 0% gain after inflation. She also thinks a finance company is a good depositing place. Wow really ! What a beaute idea.!

The other advisor is Bob Buckle who is also a top academic and has never owned a business in his life; not even a fruit stall. He teaches economics that is written by hard left socialists who hate farmers and advocate "free market". He too just thinks as Wally said' "tax those peasants harder and harder". Soon the peasant won't have any taxable income . If we don't rise up they won't have any money to buy seed to sow spuds and carrots because of heavy draconian Marxist taxes would have cleaned their bank account out.
roger douglas said in 1985 that with his policies of selling off our good businesses we would all live happily ever after in God's own and GDP would soar and national debt would diminsh to about a credit card level and wives would not have to rush off to work in the morning. Well; since then; its all been downhill. What a mess now roger.!
The same will be with these socialist/ marxist taxation fiddles , ooops; "reforms" they are called. A tax on land and hitting investment property will just wind the economy down. They can't see that because they just want money to pay for the bogus Treaty of Waitangi settlements; and they want it now. Property investment with tax incentives generates income and provides jobs; yes many jobs and work. Government need private investors to house business and peope because they are academics and they cannot afford to do it themselves. And ;sorry Mr Campbell; commercial buildings go down in value ; not up. Its the land under then that goes up in value. ! You must read that in a socialist textbook at Victoria university.
15% GST; well; it just will weaken the whole economy further. People will have less in their bank accounts than ever. It will weaken small business profitabilty. for sure. But I siuppose they need big lumps of cash to pay for the next hand out to Maori malcontents posing as proponents of justice and revenge over a piece of bush and swamp sold 150 years ago