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Opinion: What the Tax Working Group is most likely to recommend and what the government may actually do in 2010
By Bernard Hickey Here's the quick version: Out of the Tax Working Group's recommendations due later this month, I think the government will look at equalising the top income tax rate with the corporate and trust rates at 30% in the 2010 budget. The NZ$1.6 billion cost of this could be paid for by one or two smallish taxes on rental property investors such as the denying depreciation on buildings, making depreciable buildings taxable on sale, denying the offsetting of rental losses against other income or imposing a Risk Free Return Method for taxing the inflation-adjusted equity in rental properties. I'd like the government to equalise the income tax rates at 27%, increase GST to 15%, replace Working for Families with a NZ$2,000 per child semi-universal payment and impose a land tax, but that's politically too hard before the 2011 election. I'd like the government to campaign before the 2011 election for a 25% equalised income tax rate, a 0.5% land tax with a NZ$50,000 per hectare threshold and an inflation adjusted, universal Guaranteed Minimum Income to replace all benefits, including New Zealand Superannuation. Here's the long version: This week's public conference hosted by the semi-official Tax Working Group produced plenty of insight into the thinking of the group as it prepares to make its recommendations to the government later this month. These recommendations will be much harder for the government to let through to the keeper than the 2025 Taskforce, which was simply written off as an ACT party manifesto in drag that could be ignored as too radical.
For a start, the Tax Working Group's recommendations have been tempered by months of submissions from all sides of the political debate, an open debate involving business leaders, consultants and bureaucrats, and plenty of public debate. The process initiated by Bill English and taken up with gusto by Bob Buckle from Victoria University and its Centre for Accounting, Governance and Taxation Research has been an interesting exercise in 'open source' policymaking. This will help it 'stick' more than Don Brash's 2025 Taskforce and be much harder to ignore. Unlike his dismissal of the Brash group's proposals, Finance Minister Bill English told the Tax Working Group he will consider their recommendations as part of the 2010 budget. Over the next week the group will meet one more time before delivering their report to English over the Christmas/New Year period. It's not clear yet whether it will make a single recommendation or present a series of options from which the government can cherry-pick their favourites. Having spoken to several of the Tax Working Group members, I reckon it's more likely to be a series of options rather than a single consensus package. Here are the various options that could be put forward, broadly grouped in four packages of escalating 'radicalness'. I've linked to more expansive papers prepared for the Tax Working Group and our own articles for deeper explanations of the various measures, including the hotch potch of ideas for taxing residential property investment and a land tax. 'The No Cojones option' Keeping the current status quo is the easiest option. The government could just decide to leave the current unbalanced tax system that heaps the tax burden on PAYE earners without children or who haven't got loss-making rental properties. The system is unwieldy, complicated and riddled with unfairness and loopholes, particularly for rental property investors and high net worth individuals. Its interaction with Working For Families has created a poverty trap behind massively high marginal tax rates. It is biased against productive sector and unsustainable. But then again, it is by far the easiest option politically. 'The Little Kahuna option' The government could decide to cut the 33% and 38% top income tax rates and the 33% trust rate to match the corporate rate at 30%. This is the so-called 30-30-30 equalisation option that the government has said it wants to get to. This could be partly paid for by an increase GST to 15% with compensation for those on low incomes. This could be accompanied by the taxation of income from residential property investment in limited ways. These include:
- taxing equity with an inflation adjusted 'Risk Free Return Method' (which includes banning deductions for interest, depreciation and repairs) of say 6%,
- banning the offsetting of rental property losses against personal income. Currently NZ$200 billion of rental property generates NZ$500 million of losses and reduces tax revenues by over NZ$150 million.
- denying depreciation on buildings, or,
- making depreciable buildings taxable on sale.
These measures would broaden the tax base and reduce incentives for avoidance. They (may) increase rents, reduce property prices and the RFRM (may) lead some property investors to gear up with debt to reduce the tax on their equity. They may force (some) highly leveraged property investors over the edge. More detail on the RFRM is in Appendix A in this paper. National's property-owning support base would kick up a big stink. It also leaves open the risk that Australia cuts its corporate tax rate to 25%, triggering a flight of capital back across the Tasman. 'The Medium Kahuna option' The government could align the top income tax rate, the corporate rate and trust rate at 25% to remove distortions of differential rates and match an expected cut in the Australian corporate rate to 25%. It could then increase GST to 15% with compensation for lower income earners. It could then introduce a 0.5% land tax on the rateable value of land worth more than NZ$50,000 per hectare. It could also tax rental property income via the RFRM. This would encourage business investment and discourage rental property investment. The relatively high threshold for the land tax would leave farmers, lifestylers, horticulturalists and foresters lightly taxed, but would hit asset rich/income poor retirees hard. The Remuera blue-rinse brigade behind National would not be bringing a plate to the next fundraiser. 'The Big Kahuna option' This is Gareth Morgan's idea. He introduced himself at the conference as the 'token anarchist' on the Tax Working Group and he lived up to his billing, proposing something he called The 'Big Kahuna'. This would include the introduction of a flat income, corporate and trust tax rate at 25%, the introduction of a guaranteed minimum income of NZ$10,000 per person to replace all benefits, and the introduction of a 1.25% tax on all capital such as land, buildings and machinery. The current GST would stay. There's more detail in this opinion piece by Gareth Morgan. It would transform the incentives inside New Zealand's economy and its social welfare system. It would drag an entire group of high net worth individuals kicking and screaming into the tax system. It would force investment decisions to be based on generating ongoing cash profits rather than ongoing cash losses. It would be revenue neutral and therefore avoid any need for a massive slash and burn exercise within the government. It may frighten the living daylights out of some internationally mobile businesses and wealthy individuals, who could flee to friendlier climates in the Caribbean (or more likely Australia). It would alienate both the 'Blue-rinsers' and the 'Blue-Bloods' behind the National party. There would be no plates for the Remuera fundraisers, and no raising of funds. The missing Kahunas and a few leftovers Some options will not be recommended because it was clear from the discussion in the Tax Working Group they were considered unworkable, inefficient or just plain too hard politically. Any capital gains tax is off the agenda because it's difficult to administer and is obviously too politically painful for John Key and Bill English. A cut in the corporate, top income and trust rates below 30% is unlikely because of the cost, although it's not as expensive as some might think. Two wildcards in here are the ideas of a differential corporate tax rate (30% up to say NZ$10 million of revenue and 25% beyond that) and a semi-universal payment of say NZ$2,000 for children to replace Working For Families. The differential corporate tax rate would reduce the risk of being trumped by Australia and the Working for Families reform would reduce the ruinous marginal tax rates and rort-friendly means testing. What English and Key are most likely to go for Both Bill English and John Key have ruled out reforms in Budget 2010 that are too radical, 'purist' or politically unsustainable. Here's the money quote from Bill English at the conference:
"There is simply no point in embarking upon a tax reform programme that might be desirable from a purist perspective but which is socially inequitable, or administratively impractical"¦ [and] the Government is unlikely to accept solutions that go beyond what most New Zealanders would see as fair or reasonable."
But I do think they are interested in reform of some sort, particularly Bill English, who has been banging on all year about our unbalanced economy and unsustainable budget deficits. New Zealand needs a more robust productive sector and a less bubbly property sector. Most of all the government needs the faster growth that a cleaner and fairer tax system is likely to produce if it wants to make the budget sustainable. I think they may opt for an equalised 30-30-30 system for the income/corporate/trust rates to remove all this gaming of the system by top rate taxpayers. It would take some of the heat out of the residential investment sector as the tax avoiders relax a bit. They may also opt for a RFRM tax on equity in residential property and/or a ring-fencing of losses from rental property. They could also deny depreciation on buildings or make depreciable buildings taxable on sale. Either one of these would send a message and not cause too much pain. That may be enough for one year. A change in the GST may be seen as something for after the 2011 election. The think there's a good chance of a differential corporate tax rate (25% above NZ$10 million revenue and 30% below that) to ensure the Australians don't get one up on us. The Henry review appears likely to recommend a cut in Australia's corporate tax rate to 25%. I wouldn't rule out a change in Working for Families to a semi-universal payment for children, which could be sold as a reshuffling of Working for Families that doesn't break an election promise....maybe. I think a land tax would be a step too far politically for Key and English. Even with a high threshold to avoid hitting the farmers, the grief from National's support base would be enormous, particularly from those asset rich retirees in the leafier suburbs. What I'd like Key and English to do I think there's a strong case for something more comprehensive that really tries to rebalance the economy without hurting those at the bottom end. An equalisation of the top income, corporate and trust tax rates at 27% would cost NZ$3.1 billion and reduce much of the crazy displacement investment in loss-making rental property. It may even encourage some investment in businesses. This could be paid for by a 0.5% land tax with a NZ$50,000 threshold, which would generate around NZ$1.5 billion a year and not hurt farmers too much. Taxing rental property investors using the RFRM at say 6% would raise NZ$700 million. Denying depreciation expenses on buildings and denying rental property loss offsets would raise up to a further NZ$1.5 billion. That would leave around NZ$700 million to play with, which could be used to help pay for a restructure of Working for Families towards a semi-universal NZ$2,000 per child payment rather than the current means tested tax rebates. What I'd like Key and English to campaign for in 2011 I'd love them to argue for a 25-25-25 equalised income tax rate and a 15% GST with compensation. I'd love them to move towards a Gareth Morgan-style Guaranteed Minimum Income (GMI) that included inflation adjusted (not average wage adjusted) indexation. It would replace New Zealand Superannuation and make it sustainable with a retirement age indexed to life expectancy tables. I'd also like Key and English to work towards a broad capital and land tax along the lines of Gareth Morgan's Comprehensive Capital Tax, although the looming valuation disputes make my head hurt and may end up forcing a lot of tax advisers to retrain as valuation experts. I'd also like them to target core government spending at 30% of GDP, which is only where it was three years ago after 6 years of Labour government. It's now around 36%, although that's inflated somewhat by the recession spending and the the smaller size of the wider economy. That would require some tough decisions on spending, although a GMI-style welfare reform would go a long way to doing that. Much stronger economic growth powered by the tax reforms above would also reduce the likely pain involved. Your view? We welcome your comments and insights below
149 Comments
Bernard, good to see you
Bernard, good to see you taking tiny steps outside the square, but your options also leave unaddressed the cancerous tumor of the private debt based created credit system.
You also suggest lifting GST, how about, now that the financial(creative accountancy) sector has monstered the real sector, how about now making the financial sector pay GST, because they are currently exempt. Currently any increase in GST is taxing the poor only.
You to would do well to read this article from 21 year US Treasury veteran Richard Cook, he after all has been the modern crusader of note promoting the Guaranteed Basic Income:
http://www.globalresearch.ca/index.php?context=va&aid=5772
Just incase anyone does not believe the financial sector is exempt of GST:
http://www.dsanz.co.nz/taxation/WFDSA_Congress_Presentation.pdf
The deal was, we want claim rebates on our realsector inputs if you dont tax our creative activities. In 2002 the locally recruited bankster co-operatives pushed Cullen to now allow the financial sector to claim rebates on realsector inputs, further benefiting them:
GST changes likely to save banks $40m
http://www.nzherald.co.nz/company-taxation/news/article.cfm?c_id=691&obj...
For those who like it
For those who like it short, atleast read the concluding summary, like Joseph Stiglitz, Richard Cook devoted much of his life trying to get things changed from the inside:
ANALYSIS AND CONCLUSIONS
Perhaps the most consequential event of U.S. history during the twentieth century took place when the private banking system was given control of the U.S. economy in 1913 through the passage of the Federal Reserve Act. Those who accomplished this were not only Americans but also financiers from Great Britain and continental Europe. The Federal Reserve today continues as a branch of international finance.
Since then this system has produced nearly a century of almost constant warfare, the ascent to power of the military-industrial complex/national security state, periodic creation and destruction of gigantic financial bubbles, and the erosion of ninety-five percent of the value of the U.S. dollar. The vast productive resources of the U.S. and the talents and hard work of its people have been used by the financiers for these purposes.
Side-by-side have been tremendous advances in science, technology, and medicine, and a longer human life span. But much of the investment that has produced these benefits has come through public expenditures from tax revenues, supporting, for instance, the large state research universities, or from private corporations which draw on funding from retained earnings and the capital markets.
Bank credit, by contrast, has historically been oriented toward asset purchases and speculation, especially real estate and business acquisitions, toward purchase of consumer goods by people who lack ready money to meet their needs, toward the profits drawn from capital gains fed by inflation, and toward purchase of federal government securities and lending to foreign governments. In the case of lending to governments, naturally the greatest profits are made at times of financial distress and war.
It is extremely important to understand that most of these transactions are essentially non-productive in an economic sense, involve gigantic sums of money created from "nothing" through the bankers' fractional reserve privileges, and have little in common with the type of investment in the producing economy that takes place through the capital markets.
A typical case involves the purchase of a business by investors who borrow large sums of money to close the deal, then sell off assets, fire many of the employees, and slash the benefits of those who remain. They then use the profits from the business to repay their loans or sell the stripped-down company to other parties. This strategy is especially appealing to equity funds and is called "restructuring."
This type of financial corruption in which the banks and investment funds are complicit has become common over the last twenty-five years. It's another area where "market" forces are said to be at work.
The history of credit shows its power to draw forth work on the part of men and women who need to exchange goods and services among themselves in order to live. But as this report dramatizes, credit can be used for divergent purposes. Like electricity, it is neither good nor evil. It can be used or misused. Electricity can electrocute prisoners or bring light to cities. Credit in the wrong hands can start wars but used properly can accomplish miracles of science.
Today the U.S. is in great peril. Through the failed war in Iraq and the barbaric manner in which it has been carried out, our standing in the world has never been lower. As stated in the beginning of this report, our economy is wracked with debt. This debt is growing exponentially through compound interest.
In fact our producing economy has been wrecked by monetary madness. Our working population is poorer every day even as the Federal Reserve pours out trillions of dollars in new debt and the incomes of the financial magnates soar. According to a recent report from the Bank for International Settlements, money is even being lent to hedge funds which are betting on our economic decline. We are looking at a potential system-wide collapse on a scale never before seen in history.
Further, the dollar hegemony we have used so cleverly to float our national debt has come back to haunt us as we see China using the dollars they have acquired, through exploitation of their own domestic workforce in producing the goods that fill the shelves of our Walmarts, to buy up assets around the world"”in Asia, Africa, Latin America, and now in the U.S. Economists who work for the Federal Reserve have advocated in print the sale of U.S. properties to China as a way of dealing with the "functional bankruptcy" of the U.S. government.
China is already dictating trade policies to us. Soon they will be dictating political policies as well. Companies like IBM, GE, and General Motors are boosting their stock prices by building factories in China to sell Chinese workers consumer goods. It's great for the stockholders of those corporations. It's death for the U.S. workers who have no jobs and no money to buy the necessities of life except through more credit card charges.
This brings us full circle to where this report began, for "market" economics is nothing more than the abuse of what should be a public good for just such selfish purposes. That is why a powerful economy such as we have built over the last several generations can do so much harm along with the obvious benefits. It's the result of monetary policies where what we were told were "market" forces were in reality the expression of unbridled greed by a financial sector that is totally out of control.
We now need to return to the recognition that money and credit truly are public utilities as recognized during colonial days and at the times of great crises such as the Revolutionary War, the Civil War, and the New Deal.
Today we are in a similar crisis, when the solution is the same as it has been in the past. It is for the commonwealth of Americans, acting through their elected representatives, to exert their constitutional prerogatives in controlling the nation's supply of money and credit.
In other reports published over the last several weeks, the author has made a number of suggestions of the steps that now should be taken. These steps follow the guidelines of numerous monetary reformers of the past but can generally be summarized in two major provisions:
1- We should spend sufficient credit into existence to supply the basic operating expenses of government at all levels without recourse to either taxes or borrowing. At least ninety percent of all taxes could be eliminated. The only taxes that should be retained would be those in the form of user fees for infrastructure operations and maintenance and those levied only for dire emergencies. Capital expenses for infrastructure construction at the federal, state, and local levels should be financed through a self-capitalized national infrastructure bank lending at zero-interest. Operating on a national scale, such a bank could begin to rebuild our job base starting at the state and local levels. A public program of direct government expenditures as described herein would be as effective, as timely, far less inflationary, and much cheaper than creating new public debt by borrowing credit created "out of thin air" by the banking system.
2 - The endemic gap between prices and purchasing power in an advanced economic system in reality is the "leisure dividend" that we never received from our amazing producing economy. That gap should now be filled by a non-taxable National Dividend of two types. One would be a cash stipend paid to all citizens which would also serve the purpose of eliminating poverty by providing everyone with a basic income guarantee. The remainder of the National Dividend would consist of an overall pricing subsidy, whereby a designated proportion of all purchases, including home building expenses, would be rebated to consumers. The average National Dividend per person would probably exceed $12,000 per year under today's economic conditions. It would be a calculated value charged against a government ledger but would be off-budget, with no need to finance it with taxation or borrowing. The calculation of this dividend was outlined by the author in his recent report, "An Emergency Program of Monetary Reform for the United States."
The theory of this program of monetary reform derives from two principal sources. One is the worldwide National Dividend movement founded almost a century ago by Scottish engineer Major C.H. Douglas. The other is the program of monetary reform based on direct government spending set forth by groups like the American Monetary Institute in its model legislation, the American Monetary Act, to which the author of this report has contributed.
In Great Britain, similar work is being done by the Bromsborg Group and other reformers. The monetary reform movement is worldwide. Through his previous reports the author has received positive support and feedback from many countries, including Poland, Italy, India, Australia, Canada, Germany, New Zealand, and others.
The top priority of the reform program would be to use public credit to rebuild the producing economy which has been wrecked by the phony ideology of "market" economics and the inept and self-serving manipulation of the money supply by the Federal Reserve and the banks.
Direct funding of government expenditures would remove the banking system from the business of financing a massive government debt. Implementation of a National Dividend would establish the balance between production and consumption which the banks failed to do through creation of huge quantities of consumer debt to compensate for shipping our manufacturing capabilities to China and other foreign countries. Both measures would go a long away toward shifting the basis of our economy from one that uses debt for making war and transferring wealth to the upper income brackets to one that uses public control of credit to facilitate peace, domestic harmony, and economic democracy.
Once these major steps were taken, other measures could be instituted that would also reflect the status of credit as a public utility. These include the ready availability of low cost credit for consumers, small businesses, and students; the ability of capital markets to function without the destructive overhang of predatory financial methods; the elimination of all bank lending for speculation, including purchase of securities on margin, leveraged buyouts, and leveraged hedge funds and derivatives trading; restoration of a liberal bankruptcy law and the writing off much of the debt currently in place that can never be repaid, including student debt and debt held by developing nations; the elimination of fractional reserve banking by requiring that bank lending in excess of deposits be done only with credit purchased from a central government authority; the creation of a fair and structured system of international finance and investment to replace the tragically failed system of dollar hegemony; and a plan to restructure the national debt that would pay off private and foreign creditors but eliminate Treasury securities as bank collateral.
Such a program of reform would be far-reaching, but it would be based on the best traditions of America, and it would work. Above all, it would allow us as citizens of the American constitutional commonwealth to take back our country from the control of national and international finance. The same could be done by other countries. The technical know-how for accomplishing this program exists. A scaled-down banking system would still exist, but the tail would no longer wag the dog.
What we need now is for the public to wake up to the urgent need for change and for the political leadership at all levels of government to step up and make it happen. Standing in the way is the near-total control of the mass media and the major political parties by the monetary elite. Given such control, only a grass-roots movement among millions of concerned people can have an impact.
Of course it is much easier to suffer in silence, especially if people are uncertain about where their economic interests lie. But the hour is late. The U.S. is in great danger, particularly if our leaders continue to project our internal economic problems onto external enemies. What we need is a monetary system based on our best constitutional traditions that will allow us to resume our place as a great industrial democracy and live in peace with the rest of the world. The time for action is now.
Richard C. Cook is the author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age. A retired federal analyst, his career included stints with the U.S. Civil Service Commission , the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department.
Jesus Christ Iain, even by
Jesus Christ Iain, even by your standards thats a mammoth post....
Hi Bernard – sounds like
Hi Bernard "“ sounds like you had a fun day!
Given the mention of CGT, land tax, Morgan's CCT and the other "hotch potch of ideas" , I'm surprised there was no mention of stamp duty in the published papers. If we are going to have a base-broadening property-targeted tax then stamp duty would be my preferred option. Unlike land tax or CCT, stamp duty is not a wealth tax but a transaction tax. This is pretty important as it becomes due at the point at which the taxee has liquid cashflow and hence it does not affect the timing of asset divestment (important for pensioners and other asset rich/income poor individuals). In addition it is based on a realised transaction price "“ not some perceived valuation which eliminates subjectivity, compliance costs and scope for challenge. A stamp duty of 2% of purchase price would be less than ½ the transaction cost charged by the estate agent but would yield $500 million+ from housing stock alone at current sales levels. It is reasonably progressive in that wealthy home owners pay more and that mortgage holders can spread the cost over the term of their mortgage. It is effectively a one-off charge by the government upon individuals taking possession of a new property that reflects the amenities (roads, utilities, police force, hospitals, shops) that are available to your property. It is also very difficult to avoid as government controls registration of land title.
I've had a glance through the appendices you attached, and I'm not very impressed by the analysis skills of the treasury wonks who wrote it. In particular the proposed RFRM looks like a total dogs breakfast.
Hi BH I like your
Hi BH
I like your ideas on a minimum universal benefit and a flatter lower tax rate
I would scrap working for families all together. I have kids and I think being paid $2K per kid is a bad incentive (look at the DPB) at the moment and also punishes people who choose not to have kids.
I like John Key but he is definitley not ruthless at making decisions like Aunty Helen.
I will be happy with anything that reduces or caps government spending and lowers tax rates for everyone. I don't mind an increase in GST.
Tax on property investment-I will be very suprised if National implement this by 2011
All good debate
Regards
>>>making depreciable buildings taxable on
>>>making depreciable buildings taxable on sale.
I was under the impression that this was the case now. You have to declare depreciation claimed on the sale of the propertey as income.
Or have I missed the point.
Find a way to prevent
Find a way to prevent parties from buying votes at election time with budget gifts the country cannot afford...and half the problem will be solved. Goff is planning a bag of promises for 2011 and it is a certainty he will opt to entice voters with handouts. Any 'good' work English might do...will face being promised away by Goff. Labour are most unlikely to get back for 8 years but by 2017 Goff number 2 will have quite a large bag of promises.
The first three options all
The first three options all have "compensate lower incomes". I.e. increase or keep the big marginal tax rates we have in this country. We need to get rid of the welfare for working age people. So you first three options won't work. And doesn't the fourth taxes investment in production increasing machinery??
Beer Wine and Spirits lobbiest
Beer Wine and Spirits lobbiest had her own parliamentary pass until it was removed at Matt Robsons behest so you can't help wonder at the influence of a group such as the Property Council ($24B in assets and charm).
Hi All, @Bernard - Did
Hi All,
@Bernard - Did you really mean RFRM applied to capital in RESIDENTIAL property, as opposed to investment/rental properties?
@All
I've recently returned to NZ from Australia, and my immediate reaction to mention of ongoing land taxes is to wonder whether I have made a terrible mistake in that regard.
Reason why is I fail to see how retires people are supposed to afford land tax on top of everything else. They may be forced out of their homes, and into rentals for example. The wife and I have wondered whether we would be forced out of the "city" and have to go live in the back-of-beyond where property values are lesser in order to make ends meet?
I think most people work for their entire lives in order to be debt free at retirement, so that they can live on whatever meagre income may be available to them at the time.
Can someone please explain how these people are meant to adapt?
No, I'm not anywhere near retirement. Nor am I a landlord.
Cheers,
Brendon
Brendon The RFRM would apply
Brendon
The RFRM would apply to residential investment property, although there is a suggestion in the papers it could be extended to residential homes at a later date to make it fairer and broader.
cheers
Bernard
I suspect the govt will
I suspect the govt will weigh up the votes won and lost for each option, especially the 'do nothing' option. They will go with the one that poses the least threat to staying in power. All else is spin.
Iain, Please, please, please keep
Iain,
Please, please, please keep your posts shorter than that. If you have a big thing you want people to see then put in a link to a site elsewhere. But again, please keep the number of links out to no more than two or three, or our our spam filter will get you...
Our spam filter is an algorithm with monetarist tendencies....
Chris B
A stamp duty was mentioned briefly during the conference but quickly brushed aside as likely to cause people to delay or avoid transactions, which might hurt the market. I agree it doesn't seem to have hurt Australia much, but it wasn't on their radar proper.
cheers
Bernard
Needless to say I don't
Needless to say I don't agree with this, but Bernard in your mind does the RFRM apply to workers houses on farms? (Farms can have up to three or four houses for this purpose. They're not investment properties, but technically they're a rental, as a market rate rental has to be imputed into the workers gross wage).
Would it not be right
Would it not be right to say that of those options - the only one that delivers with it;
1. a significant reduction in government expenditure, combined with
2. an incentive to change investment behaviour toward more productive/labour intensive use of surplus capital
is The Big Kahuna?
In my opinion, unless this government delivers the above two outcomes in the very short term there won't be an opportunity to determine a prescription of our own in the future, no matter who the government is.
Thanks Bernard. Stamp duty is
Thanks Bernard. Stamp duty is "likely to cause people to delay or avoid transactions" . Eh? If you've got to sell your house, you've got to sell your house. A 2% transaction tariff which is washed out by the monthly price fluctuations is irrelevant. And even if it does slightly slow down short term speculative activity in the housing market - isn't that a good thing?
Conspiracy theories are catching on this site but its hard to avoid the conclusion that that is the view of a group of tax professionals who can't see an obvious income stream from such a simply administrated tax.
That $500 million revenue I stated is a conservative back of the envelope caculation based on house sales this year alone. Do you have any data on farm and commercial sales as well? I reckon including those too would get this number close to a billion. Thats most of the way to the stated Eldorado of 30-30-30.
You had some success getting land tax on the agenda. Can we try and push stamp duty into the debate too?
Fairer and broader Bernard? Rates
Fairer and broader Bernard? Rates alone can force Granny off her front porch now.
I want to pull you (and Morgan, for that matter) up on this:
"Most of all the government needs the faster growth ............ if it wants to make the budget sustainable".
We have been told for 40 years (some would say 200) that there are limits to growth. We also seen to be heading for those limits at an exponentially-increasing speed.
Cunliffe ducked replying, and nobody will take me on. I state that:
We actually need to achieve a non-growth state, to survive as a species (you got kids?).
I'll retract that statement if you can prove that you can have sustained economic growth, without digging into the finite physical environment. (or spewing the likes of carbon into it).
If you can't guarantee that, then I'll suggest that you are into the last 'doubling-time' of them all.
Which means you need to reassess tax in a much bigger way - and perhaps reassess the monetary construct that served us during the temporary 'growth' period en route.
I appreciate that anyone moving in fiscal circles stands to lose a great deal of 'cred', if they even entered the 'growth' debate, but - hey - you mentioned it in the thread - how about defending it?
For the record, My take is that the less incentive to be 'productive' with land, the better. I'd prefer a tax (like a Regional Council fine) on those who chose to degrade land - and I'd include subdivisions in the definition of 'degrade'.
I have no trouble with a CGT, as I believe the end of growth will mark the end of the ability to underwrite (global average) profit, and - dare I say it - the market will decide where the last vestiges play out. If it survives the metamorphosis.
Private debt coupled with lack of credit will limit land price (and speculation on same) in the short term, and I suggest the fact that there is thought of taxing a non profit-stream, supports my end-of-growth-phase hypothesis.
Sorry Bernard, looking at that
Sorry Bernard, looking at that post now it looks way longer than when I posted in in a hurry in the wee hours of the morn.
Those who like things resonably short just toggle down to the Analysis and Conclusions at the bottom of Credit as public utility;key to monetary reform by Richard Cook
It is very enlightening re monetary policy and guaranteed basic income.
Hi, What about the current
Hi,
What about the current tax on interest on bank deposits etc?
At present, these are taxed with no account for inflation.
So, for $100 returning 4% and taxed at 39%
Govt gets $1.56
Taxpayer gets $2.44
But at 3% inflation, that $100 is now worth $97, so the saver has made a loss.
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&o
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=1061...
Another sad development, BM. The
Another sad development, BM. The same old reasoning, though.
"It's not my fault, gov. It's the global financial crisis' fault...."
What really worries me...really...are we
What really worries me...really...are we to be taxed on each post we make. They would wouldn't they...I mean if they could they would..right?
You'd have to start selling
You'd have to start selling that copper to pay for your addiction, Wally. Forced asset divestment see - just like a land tax....
Wally - get out your
Wally - get out your copper. Make a bugle. Last Post coming up :)
What impact will the proposed
What impact will the proposed rental property/land taxes have on house prices?
Bernard How about second and
Bernard
How about second and third home? How about home and income houses? How about motel(bording house), BAB,etc..? too many exceptions? It doesn't work.
It is not fair for a person living in a $2m house without paying tax, a dad and mum investor living in a $400k house and having a $400k investment need to pay tax when they are helping the country to sort housing problem.
Joe B. The trouble is
Joe B. The trouble is that the so-called mum and dad are probably claiming tax back and therefore taking money from the rest of us just because their investment doesn't actually make fianancial sense without the tax rort. If you invest in something, you pay tax on gains, why should houses be different?
It seems there are 2 debates into 1 here?
Flatter and fairer tax
reduce house prices.
One may not come with the other.
Edit. How are they helping the housing problem? If they didn't own it to make money, perhaps someone else would buy it to live in. If investors didn't get the tax return that means they can effectively outbid a 'normal' buyer then the prices may not be out of reach for someone else to buy. Investors need to stop claiming they are doing us all a favour and admit they do it to make money.
Why not have the stamp
Why not have the stamp duty tax set and adjustable by the RB Governor? If things are getting 'hot' increase stamp duty to 5% or more til it cools off.
I really don't like the idea of new taxes, but if I have to choose between CGT and Land tax and Stamp duty, rather have LT and SD, with no thresholds and no exemptions.
Good work BH, I like
Good work BH, I like this type of article.
Leaders must have some vision and share the vision with people. Key and English have said "No" to our ideas for too many times, but they never share their plan --- if they have a plan at all.
I really like to hear Key and English's plan now, no matter it is good or bad, but I like to hear it.
To be honest I don't expect the Govt to actually implement anything in the list before 2011.
Over the past year they've shown no leadership and shared no vision.
Bernard I can't understand the
Bernard I can't understand the thing so often mentioned in political talk on CGT, and mentioned agin by you in your original post, of it being difficult to administer. Surely many territories have found ways to do this over time. Can't we copy the best bits of them? My understanding of CGT is that it would only be paid on a transaction being made, so I didn't understand Gareth Morgan's concern about people who might store wealth in a building say, and avoid tax. Does that really matter? The grim reaper catches all individuals and corporates don't benefit from storing their wealth and making it unavailable for productive use so is it really a problem for the revenue stream?
Your post didn't mention anything about a need to make taxes equitable, so perhaps for you it isn't important, but I thought it was a fundamental approach in a democracy that this was needed in a tax system. How can you avoid CGT and be equitable?
Gareth Morgan on Radiolive for
Gareth Morgan on Radiolive for those interested;
http://www.radiolive.co.nz/BARRY--Gareth-Morgan-CEO-of-Gareth-Morgan-Inv...
Imagine a New Zealand without WINZ:.
Not only do we get that massive savings in government expenditure - but the welfare state psyche and its corresponding angst that exists in NZ society just disappears immediately.
No more lobbying from different factions of welfare recipients; no more 'needs' testing based on family size; no incentive for young women to have children as a means of supporting their independence; no need for adult citizens to debase themselves in the pursuit of welfare benefits; no more disincentive to return to work.
No more pork barrel politics - no more welfare policy bribes as the determinate of election success.
We NEED the social/societal transformation that this tax policy delivers.
Novo Please correct me if
Novo
Please correct me if I am wrong, that the gain in property investment treated same with gains from any other investment.
2nd, with population growth and mum and dad investor quiting housing, there will be s rental shortage. Higher house price is better then no house to live.
Joe B. If M&D stopped
Joe B. If M&D stopped investing in housing then prices wouldn't be so high and people could afford to buy instead of renting. OK, this is not a perfect science, but houses will be built to live in and not rent. With less buyers speculating on tax rorts and hopeful capital gains the prices won't be as high.
Like many, I rent. This is only because house prices are too high (7 x median income and a high % of income) and not a lifestyle choice.
Why do investors think they are the only people wise enough to build or buy houses?
If the tax rort is removed most would not bother as the cost is too high.
Hi All We have to
Hi All
We have to put priorities right. Providing housing to NZer is far more importment then punishing mum and dad investors. Bernard H, you should go to visit some renting areas, when you see 10 people living in a three bedroom house and they are really appreciated what the landlord provided yuo will change your ideas.
Joe B Don't try and
Joe B
Don't try and kid us that investors do it for the good of the nation or the poor.
When you go to areas where an average family can't buy because the prices are too high and investors can outbid them because they can lose money with the goverment backing - tell them you are doing them a favour.
Nono How can the house
Nono
How can the house price reduced when M&Ds stop buying invesment properties? M&D will buy bigger, nicer and more expensive houses in better areas. The houses price will be skyrocket in desired areas.
Hi NOvo Please correct me
Hi NOvo
Please correct me if I am wrong. I understand the M&D investors can only claim the tax they paid back as percentage of their lose, not the goverment backing(money).
Couldn't agree more Nick. A
Couldn't agree more Nick.
A tax on bank savings encourages people to look for tax-friendly options such as housing (or take a bigger risk to get a better interest rate....)
How can we can encourage New Zealanders to save for their retirement, and then turn around and tax the hell out of their meagre bank interest pay-out?
While allowing people to plow into property speculation knowing they can make a capital gain tax-free?
Crazy!
Nice thought Kate but "welfare
Nice thought Kate but "welfare policy bribes as the determinate of election success" will remain and return with Labour each election...and the bribes get bigger with each failure to become govt...there is no end to this stupidity without some sort of legal barrier to the behaviour...a barrier that needs a 75% majority in the House to be changed...
And Kate, I'm with you
And Kate, I'm with you too.
NZ without WINZ......wow.....I can feel these Wellington clouds lifting already....
I don't think the Nats
I don't think the Nats realise the level of opposition to WFF wally......
Recently, for the first time in my life, I've been motivated to go see Mr Chauvel and explain to the consequences of WFF that I see in my day-to-day job as a banker ($800 a week in the hand and $10,000 car in the garage, but the 4 kids still hungry)
Surely if they start to think there are votes for the party that reforms Winz the wheels will start turning?
Joe B. Less people buying/bidding
Joe B.
Less people buying/bidding = less of an increase in prices, maybe even re-align to a new market level. If M&D buy a big house - good for them - but it is only 1 house and not 3 = less people buying overall still.
Investors can claim losses back (why invest when you get a loss anyway?) - Joe public cannot and is outbid by the investor. The goverment do not stop this daft situation of losses be the norm.
The whole pint of this argument is that house investment/landlords should be the same as any other business and to stop the rorting of the tax system. Losses on houses/rents need to be at least ringfenced so they cannot be claimed against another income.
Novo "The whole pint of
Novo
"The whole pint of this argument is that house investment/landlords should be the same as any other business and to stop the rorting of the tax system. Losses on houses/rents need to be at least ringfenced so they cannot be claimed against another income."
This statement is wrong and misleading. The fact is that IRD treats the house investment/landlord the same as any other business/investment activities, there is no difference.
I take your point Ray
I take your point Ray but so far we have seen Key move to the left...he has done that for support...if he chops into the property speculating party rump...he has to make up the votes lost...they will just explain the WFF bad cases as one offs...I suspect you will see WFF cemented in place with tinkering...remember the golden rule..'stay in power with a place at the trough, change too much and in comes Goff'
Ray - there should be
Ray - there should be a tax on any children after two. The world can't stand another doubling. Recently B English got hauled over the coals for a few thou in taxpayer monies - the real problem was his number of offspring.
Simple numbers, simply unsustainable.
It would limit the welfare needed too, or maybe IRD could fund an aprez-two snip?
<b>Imagine a NZ without WINZ</b>
Imagine a NZ without WINZ
Wally, from a traditional constituent point of view - Labour are FAR more likely to go with Gareth's proposal than National.
The Big Kahuna stops the current squeeze on middle income New Zealand - many of whom are young working families with no capital assets presently because their after tax income (given they cannot exploit any loopholes) simply pays the bills - and doesn't afford the ability to accumulate capital.
But it doesn't matter whether it is Labour, National, Greens, Maori - whichever party puts the effort into explaining and backing this tax system to wider NZ - they will win the popular vote. Alot of money/power from the current 'top crop' of tax avoiders may spend large to discredit it.... which just emphasises the benefit of it's simplicity.
But, you don't need big money to defend the Big Kahuna as it is so easy to explain/understand - as proven by the very short radio interview linked above.
Kate, Wally et al ..
Kate, Wally et al .. agreed. Key won't do a thing if it means loosing the very support of the voters that put him into office. They will be keeping a close eye on opinion polls, and public sentiment and we have already seen JK and BE distance themselves from anything unpopular with voters. We are a democracy, where only a small minority (at the moment at least) are arguing for reform.
Ask Goff Kate. You are
Ask Goff Kate. You are expecting a reversal of political philosophy on the part of Labour..good luck on that. Key has eaten into Goff's support by running with WFF. He can afford some tinkering that will annoy his 'rump' support base. To expect Goff to start wearing a blue tie and running with GM's ideas !!!! Too much. Sorry, but Key will keep WFF, tinker here and there, pump up the spin and believe the BS about world growth returning soon and all being well. Noddyland is set to remain a property ponzi game. Already English has adjusted the goal of catching Australia to an 'aspirational goal'....a bloody pipe dream. Goff is preparing to up the promises anti.
Novo You do realise that
Novo
You do realise that you only get the tax back on the money you have paid for the loss with. In other words you are paying your losses with pre-tax money. You make it sound like the governement just gives you back all the money you have lost in total. I agree with First Man it is no different to any other business. Even the 2IC of the IRD said this. Stopping this will only give an unfair advantage to self employed/business owners and people with income producing assets because with the right company and trust structure they write of losses against those. Only people getting screwed is PAYE employes. As per usual.
Great ideas Bernard. I expect
Great ideas Bernard. I expect the fine detail will be flushed out and assessed over the weekend by the rest of us. May I suggest you do an update on Friday before you go to ground?
Wally - Labour's traditional constituency
Wally - Labour's traditional constituency are not the multiple-property owning class, with a four car garage full of luxury vehicles all conveniently transferred into the Family Trust.
Labour's traditional constituency have everything to gain from Gareth Morgan's approach.
If Labour don't go with GM's proposal it's because my first paragraph describes most of their Parliamentarians and party hierarchy.
PS - yes, I'll email Phil
Novo - go back and
Novo - go back and do your homework before you make incorrect statements.
Novo may or maynot have
Novo may or maynot have done their homework; it may or may not have 'come out right' in his posting. But surely, the bigger question is, 'Why is this issue being discussed at all, rather than, say, should we drive on the left hand side of the road or the right'?
I quite like the Little
I quite like the Little Kahuna.
The problem with the Big Kahuna is that, in Gareth's own words, it encourages the substitution of more labour for less capital.
If you look at the wage differential between NZ and Australia, it's about the same size at differential stock of capital per worker. Aussie workers have more toys, they're more productive, and so their bosses can afford higher wages.
Tax reform needs to advantage the accumulation of plant and equipment, and disadvantage land. So I favour the land-specific taxes you've described rather than a blanket equity tax.
<b>Kate</b> : Bless you ,
Kate : Bless you , for warming my heart , with the thought of WINZ being made irrelevant . And IRD would be scaled down under Sir Gareth's programme . As Jelly Key is nay-saying anything intelligible that whizzes past his lug-holes , the success of GM's plan may be to get Goffy and Co. onto it . It will be popular to many , and Phil-In is desperate for support , he needs our love . A 5 % preferred PM rating ain't much to dine out on .
This thread seems to have
This thread seems to have drifted a long way off point. To return to Bernard's piece - he has more or less endorsed the TWG's proposed RFRM, so its probably worth reading the published joint Treasury/IRD paper linked above (Appendix A). A few key quotes are:
(Page 10, para 4) "Applying the RFRM to just one property segment would not be ideal if owner-occupied property continued to be tax-preferred" . So the Treasury are continuing to peddle the nonsense that owner-occupied housing is a tax preferred asset. This is despite extensive public discussion over the inequity that results from the inability of owner-occupiers to claim back any tax deductions (interest, depreciation, maintenance, rates etc.) on property expenses, unlike a commercial landlord. Imputed rent is not sufficient to overcome this disparity. This is an ideological burp from a discredited dying orthodoxy.
The next bit gets really interesting. If you didn't like the land tax, you're going to hate this: (page 16, para 3) "one option would be to extend RFRM to owner-occupied housing (at a later date), with the rate gradually increasing over time."
Surely an RFRM on all property (rental or owner-occupied) is just a really messy form of land tax? Grimes has outlined a pretty simple-to-implement approach to land tax - why make it so complicated (unless you a large group of tax professionals trying to create yet more jobs for the boys"¦..)
Now the calculation for the tax itself is really very weird (page 21, para 7). First up its proposed to be on Net Equity held only "“ so that will dis-incentivise property owners leveraging up to the hilt then I'm sure"¦. I'd also like to know if the bank will be paying the RFRM on their portion of the mortgage? What's even weirder is that unlike any other tax currently on the books (including withholding tax "“ see Nick above) the RFRM will be levied on a calculated Real (inflation adjusted) rate of return. This might be visionary if it wasn't so inconsistent"¦.
Other stuff I don't like:
There's some strange analysis equating RFRM to an effective tax on capital gains (page 9). No its not, it's a wealth tax loosely based on an implied (but not necessarily real) income. It pays no account to fairness regarding the liquidity of the taxee or their ability to pay. Further, the report acknowledges there's lots of scope for avoidance and redistribution of ownership. It also acknowledges it will result in a huge increase in the number of people filing tax returns.
So all in all, I can see why you like it Bernard "¦.. :-)
<b>My email to Phil Goff<b>
My email to Phil Goff
---------------------
Subject: Gareth Morgan's CCT Proposal
Dear Mr Goff
I am in favour of the above reform of NZ's tax and welfare systems.
The proposal provides a vision of a New Zealand without WINZ, and without the discriminatory tax and welfare structures which have so perniciously divided our society since the time of the neoliberal reforms.
New Zealand desperately needs a new social and political paradigm shift - in other words, transformation not incrementalism.
Labour's recent announcement regarding the move away from consensus on monetary policy should be followed up by this promise to bring about a uniquely New Zealand brand of egalitarianism, coupled with a strong focus on individual freedom and responsibility.
According to Gareth Morgan, the proposal is tax revenue neutral, and that neutrality does not take into account the significant savings associated with the dissolution of WINZ.
Please, give New Zealanders of all ages and all socioeconomic status or circumstance this chance to become true equals in their interface with the State.
End welfare dependency - End tax sheltering - adopt the Gareth Morgan approach.
Kind Regards
---------------------------
Happy for interest.co.nzers to copy and paste it into your own email - and send to Phil. Make sure to include your name and physical address details in the email.
What i am heartened by
What i am heartened by is that even under minimal changes we are at least going to see some changes around the way property is taxed, whether that be CGT, ring fencing, land tax, loss of deductions. On the other side we are also likely to see some reduction in personal tax rates. This will do 3 things
a) make savings more attractive
b) make speculating less attractive
c) kill the housing bubble (a good thing)
Bernard, you are an idiot!!
Bernard, you are an idiot!!
How can one business be treated so unfairly compared to any other business. Not allowing what are absolutely legitimate tax deductions for residential property will create such distortions - that construction of new property will become unviable and provision of rental housing uneconomic.
You would create a scenario where only the STATE could step in and fill the void. Great work Dilbert!!
As for an inequitable and unjust land tax (imagine grandma living in her old villa ($700k), next door to some upstart Website Editor in his brand new home ($2.5m) on exactly the same size section both paying EXACTLY the same land tax! (Obviously not referring to the editor of this website! - he can't afford a $2.5m home can he?)
Bernard, your opinion is all just a load of nonsense dreamed up by some greedy vampire squids who at present are unable to get their sticky tentacles into the huge volumes of money tied up in residential housing markets. The proponents of these sort of policies have the sole aim of getting that money transferred into 'investment funds' with lousy returns and exorbitant fees, which they can plunder as their own personal piggy banks.
What ever happened to less government less tax? You are no libertarian COMRADE BERNARD, you are a lousy socialist intent on bring your anti-property agenda to fruition no matter what the consequences are for the greater economy.
Just to recap. BERNARD IS AN IDIOT.
Jimmy the other one Im
Jimmy the other one
Im not sure how this will work.
a)Interest rates are so low that once you take into account inflation and tax you are in effect loosing money. (Not that many people realise this)
b&c)I'm assuming your meaning speculating on housing becuase of c) (as you can speculate on any type of investment). I really don't think this is true. Look at America, Las Vegas and Florida in particular. Both had CGT, both don't have LAQC's and both had wild speculative housing bubbles which have crashed. CGT did not stop this begining or ultimatly ending. What caused this was ridiculous lax credit requirements. For some loan you didn't even need a job! NINJA loans I think they were called. Good name! And when the credit dryed up as we have all seen it poped.
At first they will do investors but don't worry personal homes will come soon enough. Do you really trust them enough not to?
Chris_J - all the inequity
Chris_J - all the inequity you speak of is resolved by the Big Kahuna proposal.
Just what you want - less government, less tax (except for those using current tax shelters) and grandma can afford to stay in the home because she can defer payment of the tax on the selling of the asset, or of the estate. Grandma can't take it with her when she goes - so CCT is outgoing neutral for her.
Chris J Many thanks for
Chris J
Many thanks for your considered comments and all those capital letters.
Very informative...
Loving the debate above
cheers
Comrade Bernard
@Chris-J hold your horses, name
@Chris-J
hold your horses, name calling does not lead anywhere, factual discussion is preferred.
Bernard works hard and provides a platform for different opinions in the near impossible search for a sensible outcome for our problems.
How would you feel if somebody is calling you in public and in CAPITAL LETTERS an IDIOT?
Not fair and not helpful!
<b>Chris_J</b> : Deep breath ,
Chris_J : Deep breath , count-to-ten , ( Bernard is NOT an idiot ) , " Bernard I think your argument is idiotic "................ Ahhhhhhh ! Now begin your counter argument ( I , Rogie , am an idiot , but if nice people or Les Rudd gimmee gummy bears , 'taint no bother to no one )
Chris_J: "I did not have
Chris_J:
"I did not have sexual relations with that woman."
To all commenting on property
To all commenting on property investing.
Yes, property investment is treated like other forms of investments for tax purposes.
In reality it is nothing like other forms of investment whose actual value depends on an income stream.
Because shelter is one of the things that people need to survive along with food and water the demand for it is relatively inelastic. Hence so called property investors will invest with no attention to cashflow because the underlying demand will always be there.
Being a relatively basic necessity in a cold country is reason enough for it to have a different tax treatment in my view.
I am not particularly into
I am not particularly into politics or economics yet have questions I'd really like answers to:
1. What exactly is the "nanny state" many of you are talking about? I come from Europe. Maternity leave/pay in NZ is a joke in comparison (1 year paid, 3 years job-back guarantee etc). Same with the dole (work for as little as 3 months then get paid for 2 years at 80% if made redundant). Same with childcare, which is 100% free (believe it or not, some high-performing countries do realize that children are in fact their future).
2. My husband and I migrated to NZ a few years back. We are both highly-qualified professionals in IT/engineering. Then we had kids. Four of them to be specific (I can just about hear the "booos" but maybe think twice because these kids may well save your life in the future). So, I gave up my relatively high salary NOT in order to get wff, although we do, but simply because to me, taking my responsibilities as someone who chose to have kids actually means looking after them. Why vilify those who have children (ie most of us)? Without people, often women, willing to have kids and put a bright career on the backburner for several years while staying at home to properly look after them for peanuts NZ will soon be erased from the map.
3. Finally, the kiwi mentality is clearly "buy buy buy" (regardless of course, of whether people actually have the money to do so) and people here don't seem to have any problem getting into debt up to their ears. It is not so in many other places and I for one have been raised to realise that I had to earn before I spent. We, unlike many kiwis, do not go on holiday in Fiji/Samoa/Rarotonga or own a ton of gadgets, the likes of flat-screen TVs, 4 (or 5) cars, a boat etc. However we do (or rather are about to) own a nice home. So after working hard to save whatever was left from our salaries after tax (not that much when you're on the higher tax band) and choosing to use those savings to buy a nicer-than-your-average-350K-NZ-home rather than spend them on consumer goods, we'd be punished through an extra tax? Is this what you call "fair"?? That'd be sure to send highly-qualified immigrant people like us back home in a hurry (and my understanding is that there are many of us in NZ). Note that I have no issue with tax on investment properties or with addresssing the obvious holes in the tax law relating to being able to claim losses from rental properties etc.
Apologies in advance for the long post...
Re. Auz's Henry review -
Re. Auz's Henry review - why wait to see what they do, do something better, asap. eg. build on Mark Weldon's 'plan B' type thinking.
Again re. Auz, maybe Frand O'Sullivan makes some good points here:
Fran O'Sullivan: Key's faux pas looking like Freudian slip
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1061...
"English takes the view that New Zealand competes directly with Australia. A New Zealand response could be required relatively swiftly if Australia made significant changes to its tax system that advantage Australian people or businesses over New Zealand.
This highly reactive approach is not going to set Kiwi business alight.
It's fast getting to the point of saying if New Zealand wants to catch up with Australia it should get rid of the political middlemen and just apply to join the federation."
Maybe if we taxed like them, we'd be more like them in terms wealth - even though they are so much closer to our target markets than we are (not) and the major proportion (not) of their exports is stuff China is gagging for.
I wonder if they will ditch their R&D tax credit? If they do it'll improve NZ's value-add exporters' chance of closing the gap - here's hoping they'll be that dumb.
Bernard - I like your thinking hybridizing GM's approach with Arthur Grimes. Let's have more of that kind of co-development folks.
Roger - I think Gareth said gummy bears count are capital - beware!
Les - why advocate for
Les - why advocate for a hybrid of GM's approach - the beauty of it is it's simplicity - no way to game either welfare OR tax. You've heard of KISS - The Big Kahuna AS IS is it.
Ellie, We can't afford these
Ellie,
We can't afford these things you talk about because our productivity levels are too low.
Its your choice to have 4 children, the government should not have to susbsidise you to do it. I have children too, but expect no subsidy from the government to have them. Not to make you feel unwelcome, but there are plenty of people in the world that would take your place here in a second.
Having a land tax would mean paying less other taxes, especially the high income tax you refer to. Also those people do pay consumption tax on their purchases, while your investment in property goes untaxed.
"National’s property-owning support base would
"National's property-owning support base would kick up a big stink." - So forget it all then, it wont happen....at least until Labour gets in....
It of course shows clearly that there is no point in reducing the top rate of tax...simple property ownership isnt productive...except for the individual National voting property owner.
and that's the crux...shortly 2010 maybe 2011 lost of ppl are going to start hurting financially (if they are not now) from job losses and increase in costs of living and clearly there has been enough written in the press that the property imbalance will have been noticed.
So, JK and BE could, by doing nothing sign their own political "death warrants" Obama is heading that way.
regards
I think you post hits
I think you post hits the nail on the head, Elley. All the vast majority of the population want , as you alude to, is fairness; to eat, sleep, work, be regulated and be taxed according to our societies overall needs and best interests. The dilema comes with "what is fair, and to whom?" One size is never going to fit all. By definition, then, change will not suit all of you, me, and Bernard etc. That's why we elect a government ( should be different to electing politicians, but isn't!) to make decisions on our behalf. Uncertainty makes life difficult to lead, so I urge the government to "get on with whatever it is" they need to do, and let us all make whatever adjustments are needed.
@Elley: congratulations to your decision
@Elley:
congratulations to your decision to look after your kids and leave your career at the backburner. Our children are our greatest asset in my opinion.
regarding what you call "peanuts" from our "Nanny State" compared to Europe:
In Europe from your pay or income there is a big chunk deducted (and your employer has to contribute even a higher percentage to this funds) for Sozialversicherung, means social security insurance, which includes provisions for unemployment, sickness, child support, 5 weeks holiday pay, an extra monthly pay at Christmas, pensionfunds.
In New Zealand this welfare provisions come from the general tax pot!
Mark, "I really don’t think
Mark,
"I really don't think this is true. Look at America, Las Vegas and Florida in particular."
I have to reiterate this often. Houses in the US/UK NEVER got as high as NZ/Aus. And their bubble has popped. I think tax differences has something to do with this. they dont stop bubbles, they do limit the extend.
As for Aus. Their CGT was halved under Howard AND they have other incentives that we dont have such as FHOGs.
@Elly: You have to realize
@Elly: You have to realize that in here there are a lot of un-employable Libertarians who have nothing better to do than look like there are more of them than there really are. These rabid's label public services the "nanny state", 99.999% of NZers dont.
You live in a dream world with "children are our future"....global population is way to big, unless you think "nightmare" for a future.
NZ is too small to support the public systems Europeans "enjoy", but its quite likely that the EU wont be able to afford them much longer, also I dont know what country you are from but I dont recall the UK being that generous...
regards
Andy, thanks for your response.
Andy, thanks for your response. Just to clarify, we do not own (and do not intend or have the means to own) an "investment in property" therefore we do not have an untaxed investment in property. I am talking about family home.
I just don't see why people who have studied hard, worked hard and saved hard should be taxed on their family home to make up for the actions of the irresponsible people who keep consuming and consuming and consuming when they clearly can't pay for all (or any) of their stuff and therefore contribute to a soaring NZ debt.
As mentioned, we did not have children in order to get a (pitiful) subsidy (for which we didn't qualify until recently anyway, and that I wasn't aware of until baby #3) . If it was the case I'd have stayed in my home country, where I'd have enjoyed my full-time close to 6-figure salary for the last 5 years while raising my kids.
I absolutely love NZ, accepted I'd take a 30% drop in income by immigrating here and do not particularly want to go home. But I'd consider it if I ended up having to pay a tax on our hard-earned and only asset (family home). We take full responsibility for our kids and can indeed manage without wff...so long as we don't have to pay a hefty tax on our family home that is.
Kate - no problem with
Kate - no problem with the GNI and closing associated welfare depts that would replace, but taxing productive captital pushes back on productivity. That doesn't mean it would negatively impact one other aspiration of the GM approach - nil/less unemployment, as that would flow from lower taxtion as well as investment in productive capital and enterprise - yielding high-wage jobs.
I think taxing land is fine, given we do it already and have the mechanisms in place to do it, now - rates. If after we've done land tax, and all that, and it appears required, go for the 'Full Morgan'. However, a half-way step would better than none at all, which is where I think GMs idea will go - in file 19 with the PWGs fizzer.
Gertraud, thanks. And you are
Gertraud, thanks. And you are right regarding the different tax system in Europe. It does seem to work OK though.
Steven, I suppose you are right. So which one do you suggest we take out?! I promise, all four of them are bright, caring, cute and adorable and I reckon they won't end up being an economic burden :)
Nicholas, you've got a point. Maybe I should run for PM :)
Steven, I'm French (also now
Steven, I'm French (also now hold Kiwi citizenship). But please don't have a go at me for Rainbow Warrior, I was too young to have anything to do with it!
Elley knows her Kiwi.."the kiwi
Elley knows her Kiwi.."the kiwi mentality is clearly "buy buy buy" (regardless of course, of whether people actually have the money to do so) and people here don't seem to have any problem getting into debt up to their ears"...oh yeah that's us alright...and the banks just love us...it's why this nuthouse is destined to become a failed state...
Has anyone else noticed the
Has anyone else noticed the apparent dichotomy presented by the sacrosanct status of Grannies?
On one hand property is to expensive because the aging population own to much of it an won't relinquish control (this opinion I suspect stems from an issue BH has with his parents)
But in this threat any capital based tax that might encourage a female member of the aging population to reconsider her options, including selling the said underutilized asset is now evil
You can't have it both ways
Neven
Les said <i>taxing productive captital
Les said taxing productive captital pushes back on productivity.
I assume what you mean to say is some capital expenditures are more productive than other capital expenditures - and if you start getting into that argument, you blow the whole point of the proposal (i.e. equal treatment of all forms of capital just as we have equal treatment in our GST system).
As Gareth said, his proposal may lead to favouring investment in labour as opposed to investment in capital - but this does not always lead to lower productivity, or even lower profit. It all depends on the type of business one is in - and the environment for opportunity.
Doug, it was 'transgressions'... Nice
Doug, it was 'transgressions'...
Nice letter, Kate.
Well, if there is a hope of any of this happening, then I might just well stay in NZ...
Better make sure that all the extra money in the pocket is not being swallowed up by the next lot of crooks..
Let's put the warm fuzzies
Let's put the warm fuzzies on the shelf for a bit and play 'spot the loopholes'!
Exactly Neven. How many grandparents
Exactly Neven. How many grandparents are sitting in homes within walking distance of the best primary and secondary schools in their respective suburbs? Indeed many of the elderly who are still living in the child-rearing home do so at the behest of their beneficiaries - as the kids know the capital gains on the family home will be greater than those on the brand new single story townhouse more suited to a retiree.
Kate - it's a fact,
Kate - it's a fact, "some capital expenditures are more productive than other capital expenditures", and I'd be prepared to sacrifice some simplicity, elegance, purity of the solution, for the sake of bias toward improving productivity. It's not as though we don't need help with improving productivity. As Peter Dunne said, "it's a journey", or IMO it does surely need to be a journey of continuous improvement in taxation, meaning we don't rest on the laurels of any size Kahuna, we need to keep improving. So as I said, if it looks like we need to do the 'Full Morgan' at a later date, no problem - we can always say we are being pragmatic and adapting. Plus, until we got to that kind of point, that is, where we have shown a re-balance in the whole economy, I'd be incentivising 'winning behaviours' with tax credits too.
Response to my email from
Response to my email from Phil Goff's office;
-----------------------
Thank you for your email.
We have passed it to Phil and to Labour's Finance spokesperson, Hon David Cunliffe,
for consideration.
Many thanks for taking the time and trouble to write
Dinah Okeby
Private Secretary
Hon Phil Goff
Leader of the Opposition
------------------------
How nice not to get an automated reply! Big tick for that.
@ Elly "So which one
@ Elly "So which one do you suggest we take out?!" If it decides to, nature will make that choice for you...Im sure all kids are this to parents, the point is 6billion is to many for this planet....2billion is probably sustainable....so out of the 6 of you which 2 will nature leave alone? I'm a parent as well...Im worried about the future for them...and grandchildren...this and the last few generations will have effectively used up most resources leaving little for future generations....given how many there 'should' be.
I do seem to recall France being pretty generous in working hours etc (35?)....probably one of the places the free marketeers wont like.....though I seem to recall French banks are not in a bad way from the financial crisis? not sure Ive read anything.
"I absolutely love NZ, accepted I'd take a 30% drop in income by immigrating here" - ditto
regards
Steven, on the kids debate
Steven, on the kids debate (which is a bit OT here) I honestly don't think NZ is the first country that needs targeting. The main issue I think in that respect is under-developed countries where very poor people have a lot (and I mean a lot) of kids that they can't look after/afford and this is where a large part the over-population of the planet, which is indeed an issue, is coming from.
France is on 35 hrs/week, about 10-12 week paid leave a year, enough subsidies with 4 kids to fully replace my full-time salary etc. Yet I'm here, there must be a reason (maybe NZers are just plain nicer??!).
I think you'll find that
I think you'll find that Societe Generale Paris, arguably, kicked this whole GFC crisis off, with the Jerome Kervile scandal, steven. It brought the jitters to a head, at least.
http://online.wsj.com/article/SB125174436208573389.html
Les, why is that "a
Les, why is that "a fact"? It all depends on your personal perspective in terms of the definition of "productivity".
Those that choose to invest in housing as an asset class will claim that NZ's domestic productivity is improved by way of generating employment for tradespeople.
Those that choose to invest in farm land will claim that NZ's productivity is improved by way of export earnings associated with commodity products.
Those that choose to invest in plant and machinery will claim that NZ's productivity is improved by way of export earnings associated with value-added products.
We need both a vibrant domestic economy as well as a vibrant export economy - and one can always make exemptions in future if indeed investment emphasis in particular asset classes is required.
Heh guys...instead of all complaining
Heh guys...instead of all complaining that the Big Kahuna is unfair and won't work, why don't we try something radical...
...how can we MAKE IT WORK?
Gareth's idea is a complete social-business-community change. A clean sweep from the old way of doing things (that virtually every post I've read on this site for the last few months agrees is flawed/corrupt) for a completely new fresh start. Now, we could all just keeping moaning about our lot in life, how its unfair, how the sky is falling, how we are paying more/less in taxes, how the ponzi property scheme needs deflating, how the glod price is going through the roof etc etc etc. Or, we can actually do something about it.
So I ask you all...
...do you have the courage, committment and the nos. 8 fencing wire mentality of being a Kiwi (i.e the balls - big brass ones are what this country needs right now) to accept that change is needed (even if individually we take a hit) and thus DO WHAT IS RIGHT FOR THE COUNTRY?
Do you?
If so, I want to hear HOW we can make this work....not the automatic and immediate 'No' response.
(Oh, and if any political party has people following posts on the Big Kahuna: there are two votes for sale in Dunedin to the party that brings this in, and I'm sure I can convince others).
Right on, Kirsty - the
Right on, Kirsty - the Big Kahuna WILL WORK. And indeed, the political party with the balls to admit it WILL WIN.
Mainstream New Zealand is tired of "old farts", "old ideas" and "same old, same old left/right arguments".
Time to be innovative and bold. Time to stand out from the international crowd. Time to follow a locally-grown economic doctrine.
Who cares if it isn't perfect first time around - we're a small country with a unicameral Parliament - implementing incremental change to the Big Kahuna approach would be easy.
But you have to take the plunge, rather than put a toe in the water, if you want to learn to swim.
Where abouts can you get
Where abouts can you get 6% return with zero risk?
There is a generation of kiwis who would love to know!
If there is no answer to this question, then why would you tax anyone's assets/property at this rate?
Kate - Learnt to swim
Kate - Learnt to swim when a kid....mum and dad chucked us all in the deep end and wouldn't stand for any whining. Their attitude: losers complain, winners get down and do it.
This country has the chance to be a winner again, or we can be losers...whats it gonna be fellow Kiwi's?? Because I for one am sick and tired of being told that we can't, that we need the constant handouts, that we won't be as good as Australia - well hello, WHY do I want to be at the Aussie level?? - shouldn't they be aspiring to be at OUR level?? (Best lesson Dad ever taught us kids about selling: get around the other side of the counter and see what they see).
Jimmy the other one You
Jimmy the other one
You have to be kidding! CGT wasn't slowing down anything property wise in US (Las Vegas and San Fran) when I was there in early September 08 just before everything sh4t itself. They were out of control. As I imagine much of the country was. Especally Vegas! Greed had well and truly taken over. I know you are saying that our property is more over valued than theirs, but as for smoothing out peaks and troughs taxes were not working there!
The voilent turn off of credit plus big over supply IMHO popped the bubble. CGT or other taxes really had no effect. Possibly slowing initally growth at the begining of a boom but once greed takes over it certainly didn't limit it. Really at the end of the day land tax or CGT is just another expence to factor in and yes you are probably right in the short term this might bring down prices a little in NZ as people adjusted to it but longer term I think it would be just factored in and it would be back to the same old business as usual. Problem is not sloved. Higher capital requirement laws for secondary or rental properties would be far more effective. What about 40-50% capital requirement for a second home or IP? Don't get into thinking tax is the only way out.
As for Aus well it's debateable they even went through a ression (barely a technical one if memory serves) hence people feel more comfortable in their job and hence more comfortable with housing. I do agree the FHBG is silly and probably has contributed. Maybe a little. I don't think we shouldn't have that either. I'm not sure if a lot of people saw the CGT halve and went " Jeeze I better go and buy a new bigger house and probably several rentals also." Im sure as an overall trend that wouldn't be the case.
Mark, At the height of
Mark,
At the height of the US bubbles, US median house prices were 4.5* median income. NZ/Aus 7-8.
It never got as bad there, certainly not across the board. AND they have had a 30% fall since. Lucky them. Who gives a crap about a "strong" economy if your houses cost more than twice as much.
Kate - productivity and vibrancy.
Kate - productivity and vibrancy. Please define and defend. Actually, just productivity. The other is just a buzz-word.
PDK - productivity - the
PDK - productivity - the act of producing goods/services that have an exchange value.
Kate - it is indeed
Kate - it is indeed about perspective and in mine the first two choices that have seen much more investment than the third leading to the imbalance we now experience. Phasing from land tax toward the more pure 'Full Morgan' approach at a later stage is warranted to facilitate the required rebalancing more rapidly.
Kate - thank you. I
Kate - thank you. I note the omission of the words 'finite', and 'sustainable'. :)
Jonathan ...you can get that
Jonathan ...you can get that at fpf govt Guaranteed for 6 months!
Les said <i>– it is
Les said "“ it is indeed about perspective and in mine...
It is for this very reason (i.e. imbalances in investment and subsequent market distortions) - that no asset class should be either advantaged nor discriminated against through tax policy. Capital will be invested where the greatest returns are to be made.
The Big Kahuna puts;
- An end to welfare dependency
- An end to tax sheltering AND
- An end to pork barrel politicking
I find it fascinating that
I find it fascinating that these blogs appear to pause when it's time to go home (FROM WORK) capital letters are in vogue apparently. Hard working us Kiwi's. Always making sure our employers get the biggest bang for their buck. Of course you all could be retired............. ,admired, no longer hired, fired, mired and just plain tired. If you are like me tired of the absolute short sighted and self perpetuating politicians this country produces. The day a polly annouces a policy that looks ahead 10 to 20 years and won't guarantee their re-election I'll ....................I'll eat gummie bears.
Justathought- Eat your Gummy Bears....
Justathought- Eat your Gummy Bears.... "Russell Norman", "Jeanette Fitzsimmons", "Darren Hughes" to name three,
The problem is the constituancy does not look 10 to 20 years ahead... and they elect people who share their short sighted views...
To get better politicians... we need a critical mass of smarter voters.
Quite right Mouse. They need
Quite right Mouse. They need to engage the debate about the sloping deck.
Any tax regime promulgated runs into exactly what I was getting at with the question to Kate: the old 'givens' like 'productivity' and 'growth' just went out the window, and if pursued much further, there won't be anyone left to tax.
Of course, I'm way off-thread - should be discussing whether you rent the red or the blue deckchair, and for how much.
Kate, a hard hitting response
Kate, a hard hitting response but so true. As I wrote previously NZ now has 1.2 million on benefits and 1.9 million working. Almost an unbelievable ratio of 1:1
The 1.2 million contribute little or nothing to the tax take but can still vote. That is the problem for any bold decision making that we so desperately need. Even our 18 year old youth who know little or nothing of life can vote.
Over the years buying the election has become common place and now to reverse this situation is virtually impossible. The high hopes we thought John Key would bring are considerably watered down.
Yes, Barry - I was
Yes, Barry - I was beginning to think the only way out of the vote-buying problem in NZ politics was to deny the vote to any individual receiving any form of government payroll (be they superannuitants, public servants, sickness beneficiaries, students etc..) - but of course this is totally undemocratic.
And then, along comes Gareth Morgan's idea of a universal adult guaranteed wage - and a non-preferential, flat tax system. And voila ... now we can start talking about what really matters - the future!
# Chris_J Says: @ 1pm
# Chris_J Says: @ 1pm
What ever happened to less government less tax?
EXACTLY
Sally - They tried that,
Sally - They tried that, then they invented governments. Think about it.
Baby boomers saw their hard
Baby boomers saw their hard working and saving parents get crunched in shares in 87. Their parents have been re-crunched again in the finance company debacle. In the last two decades Kiwi baby boomers realised they cannot bank on receiving adequate government super or pensions and responded to the 87 crash by wisely avoiding the sharemarket. Their solid efforts to avoid capital losses and provide a rental stream for their old age, independent of the state, is now to be rewarded with PUNITIVE EXTRA TAX.
The CGT or land tax proposal is a retrospective attack on wise investment decisions. The loudest proponents seem to be vested interests like Gareth Morgan and the other share market fund managers and websites where finance companies pay the bills.
@Kirsty "Heh guys…instead of all
@Kirsty "Heh guys"¦instead of all complaining that the Big Kahuna is unfair and won't work, why don't we try something radical"¦"
Sure why not, but if you want another cultural revolution rather than incremental change it would be democratic to let the electorate vote for it.
There was no Big Kahuna party on last years ballot.
Wasn't that ACT, Joe? Sure,
Wasn't that ACT, Joe? Sure, they didn't get in the front door, but isn't that how this Tax Reform Review thing got started? ( Admittedly, Rodney is less of a 'Big' Kahuna these days!)
Oh Joe, dragging out "the
Oh Joe, dragging out "the poor grandma" argument is so tiresome. Start thinking about the future. Every generation had its formative years - and the world was a much easier and less complicated place to get ahead in during the formative years of the boomers parents, and the boomers themselves.
In my time if you got a univeristy degree - you were virtually guaranteed a good job, with good career prospects, with good pay. That cannot be said for today's university graduates.
Don't get me wrong - I LIKE old people - I'm one - but if you're circa 60 this decade and you haven't built yourself a nest egg, then you've likely been sick, lazy, foolish, greedy or just plain unlucky. And iof some grandma gets taxed off her Remuera land, well, frankly it's no serious tragedy - as I can assure you she'll probably still be able to eat better than many of our children living below the poverty line.
Go Kate Go, i'm sick
Go Kate Go, i'm sick of these geriatric strawpersons arguments
Joe, you're onto it. It's
Joe, you're onto it.
It's those who earn their keep by taking a cut out of managed/investment funds (whether through management fees or advertising [BH!]) who are the most vocal proponents of these kind of taxes.
What real benefit will there be changing the games rules mid season except to punish those already in the game and then advantage those waiting on the sidelines?
I have to ask why on earth Bernard proposes universal child support. If giving money to poor people so they can have children isn't bad enough, BH wants to give middle and upper income families more money too!
I THINK Bernard says these things just to annoy the HELL out of GOOD hard-working New Zealanders. SINCE old Bernie hates CAPITAL Letters and PUNCTUATION!!!! - SO MUCH!!!! I thought I might TRY to annoy HIM SOME MORE!!!!!!???
But if that didn't work!!!!!! I will REITERATE my early point that:
BERNARD IS AN IDIOT!!!
Why?? Because all these tax changes will actually increase house prices:
First an extra 2.5% GST will boost the replacement cost. So if prices don't increase to account for this supply will decrease, demand won't decrease so eventually prices will rise to account for the increase.
Second: a land tax will encourage development on even smaller sections making existing full family size sections more scarce and even more expensive. Hence the price of existing family home properties will rise sharply as their supply is constrained.
Third: BH's changes to property investment deductions will discourage investment to such a degree that supply of rental accommodation will diminish but that doesn't mean that there will be more people buying first homes. Look at 1999-2002: it was the most affordable time in the past 35 years to buy a house in NZ yet there was no sharp reduction in the proportion of renters - instead there was a sharp increase in prices! Less rental properties imply higher rents imply higher house prices.
Fourth: If house prices decline (BH's sole aim), but replacement costs increase (GST increase) then it becomes less economic to provide new supply, so overall supply decreases (cf 2008-2009) hence prices increase. Reducing house prices while the quality and size of new homes increase is not possible UNLESS actual demand for houses falls so trying to effect this artificially will NEVER work.
How does making it harder for NZers to build wealth by taxing them more, make for a better NZ. I don't know? Does Bernard?
What benefit would a potential one of adjustment in property prices have? Other than impoverishing, possibly bankrupting and destroying the wealth of several generations of hard-working New Zealanders?
Chris_J - the discussion is
Chris_J - the discussion is not about taxing NZers more - it's about taxing NZers differently. And by the look of it - the majority of the readers of this site vote overwhelmingly in favour of major tax reform.
House prices are on the way down no matter what in NZ - simply because economic conditions the world over will overtake us (and our Aussie neighbours) too. Our creditors will see to that.
So, all you really need to worry about is timing your exit, if indeed you are highly leveraged in that asset area. The writing is on the wall, Chris. Those property investors with portfolios that are not highly leveraged have nothing to worry about.
Kate-most investors that were highly
Kate-most investors that were highly leveraged that I know have re-valued and re-financed at much lower rates recently and are sitting pretty compared to 12 mths ago. The market and banks sorted the rest out last year...
ChrisJ it is you that
ChrisJ it is you that is lacking your faculties.
If you haven't noticed it is that price of land that went through the roof 2002-07 not the cost of a house, which went up with the genera cost of inflation.
Who owns a full size section (what is that anyway) now apart from Grannies in Remmas. Most new sections are about 400sqm. INFILL housing has been going on for years without a land tax.
1999-2002 unemployment was as higher or higher than it is now and we have just come out of a long recession. Given that first home buyers are more likely to be unemployed than average then it makes sense that home ownership didn't increase.
New houses are cheaper to build than existing NZ crapboxes because the price of sections have dropped, I know because I am building myself. I would never buy an existing NZ house because they are generally rubbish value.
You hit the nail on the head when you say that NZers have their wealth tied up in property. THIS IS THE PROBLEM!!! or have you ignored what everybody here has been saying.
Whoa...... Before everyone goes to
Whoa......
Before everyone goes to bye byes, can someone just explain/contradict Barry (7.38) for me:
"As I wrote previously NZ now has 1.2 million on benefits and 1.9 million working.
Almost an unbelievable ratio of 1:1"
I need to sleep without nightmares. (just point me at a contradiction please)
The baby boomers motto ME
The baby boomers motto ME ME ME.
Since when is a 0.5% land tax punitive.
How can it be retrospective unless applied back to purchase date.
It is not extra it will displace.
You'd better be nice to subsequent generations to keep them in the country as they're gonna pay your super and wipe your behind when your in the old folks home.
hmmmm... guess it must all
hmmmm... guess it must all be true,
They do all go to bed at 9.00pm.
Probably can't afford to heat their houses this late.
Or is there a sporting fixture that I don't know about.
Maybe they've all used up their internet 'quotas'
Poor possums
Oh well ... move the deckchairs back into place for another day.
Hi Kate, Kirsty (and other
Hi Kate, Kirsty (and other avid morgan fans...!),
Kate said: "why advocate for a hybrid of GM's approach "“ the beauty of it is it's simplicity "“ no way to game either welfare OR tax"
I posted on the other thread (link here) on just a few ways wealthy asset holders could game a CCT system so as to pay virtually zero tax "“ along with a bunch of other stuff I don't like about GM's proposal.
In general, wealth taxes encourage the use of asset shelters. The only notablel exception to that is land as it is immobile, sovereign, and land title is a government issued document (hard to hide). Wealth taxes also penalize illiquid individuals. Taxes on transactions (GST, stamp duty, PAYE, Tobin tax, inheritance tax etc.) are fairer in that they occur at a point in time when the taxee is actually able to pay"¦. As the proposal is to try and drop income/company/trust taxes the best solution is clearly to raise some combination of other transaction taxes to achieve fiscal neutrality.
It appears that you are particularly taken with GM's proposal to axe Welfare and add a Guaranteed National Income (GNI). The problem is the sums for this don't add up. GM admits as much in his ppt presentation. Total present cost of welfare state to NZ=$16bn. Total cost of proposed GNI = $30bn. GNI is a VERY expensive non-solution. The CCT is a rather desperate proposal as to how you might raise an extra 14bn in tax revenue. Why on earth do you think an extra 14bn in tax (in exchange for an actual reduction in government services) is a good idea?
Hmmm - link above goes
Hmmm - link above goes to entirely the wrong place - no idea why. Try this (should go to a post by me - not an article by one of the rodney's):
http://www.interest.co.nz/ratesblog/index.php/2009/12/01/opinion-gareth-...
I guess the figure of
I guess the figure of 1:1 may be a tad misleading, KW.
For example, our french Elly states that her family doesn't actually need a Working for Families handout....but they take the cash anyway.
The point is that the system is open for abuse and the long list of different types of benefit mean that yeah, almost half of us can get something for nothing.
In case you didn't know, benefits cost NZ $22,000,000 A DAY!!! (that's 22 million dollars a day.... just to clarify.....).
Totally sustainable. No worries...
Chris B asked <i>Why on
Chris B asked Why on earth do you think an extra 14bn in tax (in exchange for an actual reduction in government services) is a good idea?
That's a good question. I see the main benefits of the proposal being:
An end to welfare dependency.
An end to tax sheltering (altho as you point out some asset may be hidden offshore - e.g. cash, gold etc. and in many cases this practice already exists).
An end to pork barrel politics (meaning the country cannot be 'held to ransom' by a particular policy/beneficiary group).
There is no doubt we are going to get some kind of "new" or additional tax - as the government seems intent on broadening the tax base (and indeed the IMF has deemed that it must!) - altho of course one of the principle ideas is an increase in GST, so the word "broadening" is just a red herring - the actual phrase should be "increasing the tax take".
I am not for increased taxes - and so a tax that is the most difficult to avoid through tax sheltering would be my preferred way to go. GST is of course one of these types of taxes, but it is also perhaps the most regressive form of taxation going.
Hence, we come down to capital gains tax, or land tax, or capital tax - and I'd choose Gareth's version of comprehensive capital tax (CCT) because it captures land as well as other forms of capital. As a result of this 'comprehensive neutrality' in terms of where we invest our surplus capital and our work effort - I believe generally people will start making investment decisions based on the most productive use of their assets, knowledge and time - as opposed to based on what most minimises their tax bill. I believe it benefit labour - and that is a good thing.
But more so than all of that, the biggest benefit is the incentive it gives for individual responsibility (i.e. here's your $10,000 do with it what you like - aside from that we don't need to know anything about your personal/family responsibilities) and the fact that it treats all New Zealanders THE SAME with respect to their role/interaction with the state.
That universal sense of equality for all - regardless of age, work or family circumstances - has extremely positive social implications.
Chris B: So we don't
Chris B: So we don't have tax shelters now? Come on, most of the tax system is set up to be a damned tax dodge is some way, that or you're able to move ownership around to minimize tax and get under thresholds for WFF (now that's a rort!).
As for getting rid of welfare...HELL YES! We are sick and tired of paying for lazy slobs on welfare. We are sick and tired of paying for other peoples kids - you choose to have the bl**dy parasites you pay for them...why should we?? We are sick and tired of seeing the Oliver Twist mentality all the time. We are sick and tired of having every man and their dog coming to us with their hand stuck firmly in the horizontal position. This country has become a land of beggars (welfare dependent on any hand outs) and thieves (those who rort the system to also get handouts of some sort)...anything that aims to get rid of that mentality is good.
But let me give you some background as to why hubby and I see Gareth's plan as a good thing. We are DINKS (double income, no kids), hubby is 44 and I'm 38, we have NEVER had a mortgage and yet own our own home (we built it with hubby's redundancy back in 1991, finished the kitchen and lounge last Xmas as our pressie to ourselves - we live on a farmlet), we've never earned more than $80,000 combined, we've never inherited money, we've never won lotto, we have several tens of thousands saved in bank deposits, we run two mid-90's vehicles. We don't have the latest in consumer gadgets, and yet when we want something we go buy it, we pay cash. We've never had HP, terms or anything of the 'buy now, pay later' nonsense.
Now some of you will read that and think: "bl**dy idiots, they could have been milking the cow for handouts", well guess what, we'd rather be proud idiots than be known as bludgers. We were both taught to stand on our own two feet and look after ourselves, we both have siblings that look at us as bank accounts waiting to die (their argument being that the money has to go to someone doesn't it?). We constantly have strangers asking us for money, we say no; we're made to feel GUILTY because we have been sensible and saved all our lives rather than consume like an addict.
So I ask you Chris B, why shouldn't I see a complete change as advocated by Gareth as anything but a good thing? Yes, we will be punished again for not being consumer-debt orientated, but such a sea-change will provide such a kick up the backside of the collective mentality of Kiwi's that I'm all for it. This country has to change, it can not carry on its spending habits as if everything is okay, the collapse needs to occur not incrementally but with a great big thud, BECAUSE THAT IS THE ONLY WAY PEOPLE LEARN!
rant over.
Kate said <i> "An end
Kate said "An end to welfare dependency"
Will turning every single person in the country into a beneficiary achieve that? I agree that welfare reform is neccessary, particularly to regard with marginal tax rates for low-middle income earners (much of which can be fixed simply by removing thresholds and reducing the top rate). Income splitting would help for families. Universal child benefit too. I'd even support make-work projects for those on the dole. But throwing, and I repeat, $14BILLION at the general populace in a totally non-discriminatory manner is not a cost effective solution.
With regard to tax avoidance under CCT I think you are underestimating the problem. What would happen were CCT to be introduced is the following:
Every farmer, business, trust and individual of significant means would transfer their assets to an offshore company (probably Australian for ease of administration). The holding company would issue debt to the required amount and the farmer/ business/trust/individual would pay a lease back by forgiving debt over the folowing few years. the NZ resident entities would hold zerop asets. there would be a massive flow of funds offshore (destroying the trade balance) and the CCT would capture only the poor PAYE homeowners without the wherewithal or means to "play the game".
@Kirsty - I think you
@Kirsty - I think you may have me confused with a rabid libertarian. And whilst we're comparing life stories - we are double income, 1 kid. We only have 1 mid 90's car and would like to own a house but not at the current looney prices . We don't get WFF as you need to have at least 3 children at my salary to be eligible. We have no debt because we like to stand on our two feet too.
But enough name-calling - lets be constructive. May i offer you an alternative to the big kahuna. I call it the "medium kahuna with sides" :
Revenue "“ve measures
- $10,000 tax free threshold - cost ~$2.5bn
- 25% flat tax company/personal "“ cost ~$5bn
(Tax trusts at 30%. At the moment I'm inclined to think that you should pay for being able to shelter
assets in a fictitious entity, unless someone can come up with a socially responsible reason that a profit-making trust should be treated exactly the same as a publically liable company?)
- Introduce universal child allowance of $2000 pa per child "“ cost ~$2.5bn
- Make childcare tax deductible from PAYE "“ cost - no idea but its insane that it isn't
Total cost~ $8.5bn
Revenue +ve measures
- Abolish WFF, SEC, LEC "“ almost impossible to actually find numbers for this anyone know? I'm guessing about $1.5bn
- Stamp duty @4% - gain ~$2billion
- GST to 15% - gain ~$2.5billion
- Abolish LAQC structure
- Remove depreciation on residential property (claim for maintenance instead)
- Ring fence other expenses on property ownership (rates, interest) - provide 5 year rolling claim-back period to recoup from future year profits on property.
Gain from these 3 measures - somewhere around $2 billion
- Remove "natural care" clause from exemption of taxation on debt forgiveness (makes asset sheltering in trusts and companies more expensive)
- Lower Gift tax threshold to $5000 (as above)
- Reintroduce Estate tax "“ by removing gift tax and debt forgiveness the loopholes that made estate tax so easy to avoid in the past have been largely eradicated. Estate tax is one of the fairest taxes in existence "“ you can't take it with you after all! We should have it for estates over $1 million
Gain "“ 0.3billion
Total Gain 8.5 billion
This I fiscally neutral, taxes transactions not wealth, compensates lower income families for GST rises and addresses issues with different tax treatment of property investors and owner-occupiers.
The welfare problem is a separate sheet which I leave for you. You have $16bn. Go for it.
Ray, just to clarify from
Ray, just to clarify from "French Elley": we "can indeed manage without wff" so long as I go back to work (full-time because in case you don't know, daycare is extremely costly in NZ and 4 kids in daycare at once is not affordable for most people unless they do receive "evil" subsidies). We can't manage if I stay home to look after my kids and try hard to make sure they don't end up like many other kids in this country (just look at statistics for teen pregnancies, drugs, gangs and gang-related violence, boy racers etc; NZ is a disaster).
Maybe it might occur to you that having well-educated, well-behaved kids will be beneficial for NZ in the long-term? Maybe it is time to support the few career women who actually have the balls to give it all up for a few years to make sure the country doesn't end up with young people who end up costing a heck of a lot to the country through their irresponsible actions?
And maybe it's about time people here made a difference between 1. people who have contributed in the past and will contribute in the future, a lot, to the growth and economy of the country and for whom during a few short years having govt support is important 2. people who abuse the system and have kids to claim wff, get supposedly sick to claim sickness benefit, get made redundant and then don't even try to find a job for another 15 years.
Oh and Kirsty, I'm totally
Oh and Kirsty, I'm totally with you on the "save before you buy" policy. Couldn't agree more in fact. But please no need to call kids "parasites". Without them you wouldn't have anyone to look after you when you're old and decrepit and when you desperately need a (younger) doctor to look after you. Although I must say I'm glad you and your husband didn't multiply.
Chris B: hmmm, could agree
Chris B: hmmm, could agree with both sets of details (flat rate, higher % for asset protected trusts, ring fenced expense claims etc), but as to welfare I'm probably the wrong person to ask (my views are extreme), but...
...one flat welfare rate, as in one thing, no exceptions, no top-ups, no different names, no different age brackets - do with it what you will, don't care just don't ask for more or special circumstances (go down that road and everyone has a 'special' circumstance). As for how much...enough they can live each week, but not enough that they can regard it as a career choice (eg DPB - I went to school with girls who for them that was their career choice, they knew exactly how much $ they would get for popping out a kid). Basically, at a rate that gives them a hand-up not a perpetual hand-out.
The details I'll leave to wiser (as in those who know intimately the current ins and outs of the laws) heads than mine, but the sentiment has got to be one that seeks to change this welfare dependency/tax minimization attitude for one that sees people doing for themselves and accepting that tax is required to be paid.
Chris B: (9:45 10;10) Thank
Chris B: (9:45 10;10) Thank you - more considered than any of the 'get out of jail free' schemes detailed by the Tax Working Group.
Elley - I come from
Elley - I come from a large (very large) family...kids are parasites. Recently a study came out (from Australia?? I think) that stated that $1million would be spent on a kid in their first 18 years of life. Other studies have similar amounts as to how much one kid costs a family. If yours are productive then good on you for raising them as such. However, I don't agree with people being paid to have kids. For example, I breed sheep...I cull those that don't make the grade; basically, I don't let bad genetics breed, otherwise my entire flock would go backwards (I think that's a polite way of putting it).
Oh and as for old age. Both hubby and I agree in euthanasia...we won't be a burden when we get 'old' as we'll be choosing the manner and time of our deaths...why should society force me to live if the body has broken down, and I'm old and decrepit?
@Kirsty... How many of your
@Kirsty...
How many of your sheep have gone on to further education, written a novel, cured a major illness?
Point taken though. Now which one of the kids shall I have for Sunday roast?
" kids are parasites "
" kids are parasites " , Kirsty . With that attitude you may not be " old and decrepit " before your offspring decide to " euthanise " their Mom & Pop !
Saints preserve us !!!!!!!!!!
Chris B, those are all
Chris B, those are all excellent suggestions to incrementally improve some of the current rorts. But it is still discriminatory (treats different family compositions differently) and it doesn't get rid of one bit of the massive administrative costs associated with our current benefits regime.
I do not think that the Big Kahuna proposal turns every adult NZer into a welfare beneficiary - it effectively gives every adult New Zealander a $40,000 tax free threshold - those that do not draw an income elsewhere just get the $10K (so the "beneficiary" numbers stay the same - only they are no longer "beneficiaries" - they're just plain old adult New Zealanders).
I note you are recommending a $10K tax free threshold but you do not refer to that as a benefit. Think of the $40,000 tax free threshold of Gareth's in the same way.
It is all about how you frame things - and the Gareth Morgan proposal frames us all equally in the eyes of the state.
If the state wants to help further with expenses associated with raising a family and education/health etc. - then free daycare for under 5's; free GP visits for under 18s; free connection to the internet; and so on. But no monetary benefits, no accommodation allowances, no student allowances and so on and so forth.
There may be a need in the initial transition period for a significant upscaling of state built/provided housing and perhaps the introduction of food stamps for the unemployed - but the aim has to be for no cash benefits.
My kids might cost me
My kids might cost me quite a bit while they are young but when they are adults they'll be the ones paying tax for all of the old people like me. And for the record, I have no intention for them to be a burden to society and am more than happy to pay for them. As soon I feel it is more important for a company to have use of my skills rather than for my kids to have access to their mum (ie not when they are all preschoolers) I will be back to contribute both my skills and my taxes to the system.
Another point on the kids matter: running NZ unis as companies (ie with the aim to make a profit) may not be the best approach in terms of long-term outcome. At best it means bright young people who want to graduate and do useful things (ie positively contribute to the growth of the country) end up with debts so high they can't pay them off or can never get a deposit for a house because of them. And at worst it is a strong deterrent to studying, and generally speaking people who drop off school are less likely to have a positive impact on the economy and more likely to end up being "welfare-dependant". The number of our friends with huge student debts is one of the things that has struck me most here. Maybe NZ should get back to the basics, ie look at the cause for its financial woes instead of trying to fix the patches (like welfare) which have been "invented" to try and make up for the (terrible) results?? Giving anyone access to free education is not going to be the answer to all the problems but it sure would be a step forward.
Kate - your 6.45pm yesterday,
Kate - your 6.45pm yesterday, yes, all those benefits sound great, no problem. However, I think we'll have to agree to disagree regarding my concerns, adjusting gradually to what I (and Gareth also) suspect/recognise as potentially yet more bias away from investment in productive capacity, for value-add exporting. I also recognise the regime could tend to foster investement where returns are greatest, sure, so onto cost of capital, bank lending policy, monetary system/policy (inflation positive) - if that's left as is, could it transpire that investment in productive capacity, for value-add exporting is still at a loss compared with the present preferences?
Anyway, just a few more reflections from my time on the day. I was initially reluctant to attend. I've been to a few government backed 'talkfests' and many have been no more that a tick in the consultation box to rubber-stamp a pre-determined agenda, (typical of the 'central planners' last government) and given the kinds of things John Key and Bill English have said during the course of TWGs work I thought this might be much the same. I am less skeptical about that project now, given:
1) aside from working on the nominal objective of delivering options to deliver 30.30.30 at revenue neutral, I got a strong sense of the recognition that the current system is badly broken, allows too much avoidance and needs deeper reform. Something that seemed consistent throughout the group.
2) recognition of complexity and the need for a 'whole system' approach, as best they can.
3) we need deeper reform, but we need to continue on a journey of continuous improvement (Kaizen) as we go forward, and not get left behind as the world changes around us - the situation we face now. More CASPer thinking, good on em'.
4) change needs to be sustainable - in that, there's little point making change that will only be reversed in the next electoral pendulum swing. You know, the kind of hysterisis NZ has suffered for years. (PWG, take note.)
5) evidence of differing opinions and solutions ideas within the group (all good, I bet the fur has flown at times!) but on aggregate the project did not appear to have been adversely affected by political interference, either by extreme adherence to a particular ideology, (PWG, take note) or things politicians have said or pleaded during the course of their work.
So looking at 2) and GM's step to span tax and welfare with the idea* he presented, how about really being joined-up and including monetary system/policy reform in the system boundary:
http://www.interest.co.nz/ratesblog/index.php/2009/12/01/opinion-gareth-...
* Who's ideas was this? I think I've seen on a thread here somewhere that this looked very much like a recent Roger Dougas effort? Plus GNI, or GMI, is nothing new, see Iain Parker work and other monetary reform advocates.
Finally GM's presentation was as entertaining and punchy as you'd expect, but the work and thoughts presented by the others were also useful and more likely to get traction tham GM's Kahuna (at present at least) so I hope work will continue on those ideas and not get swamped by Gareth's wake! (Good stuff Gareth, but maybe after a few more steps.) In particular I found the presos of John Sherwan, John Prebble and Casey Plunket quite insightful (and also entertaining) - in highlighting the weaknesses our present system suffer. In addition, Geof Nightingale pointing out that it's all quite do-able, with a variety of scenarios. In other words bugger TINA. Then Mark Weldon's 'Plan B' thinking - my view on that kind of thinking is, JFDI, why wait for the Aussies? We won't catch em' by following their moves, we have to lead the game. To that end IMO both PWG and TWG would benefit by including some people who actually understand producing value-add exports, managing change (we used to call it leadership) and CASPering, eg. Selwyn Pellet, Robbie Deans and John Walley.
Kate - I'm biased. When the system/economy rebalances I won't be.
Cheers, Les.
Kate said, <i> "it effectively
Kate said, "it effectively gives every adult New Zealander a $40,000 tax free threshold" . Well actually no it doesn't, if that were all it did it would only cost ~$8.5bn. Gareth's calculations (see his powerpoint) are the rather simplistic 3m*$10,000=$30bn. There's quite a big difference between those two numbers.
Look we could give everybody a GNI from the existing welfare budgte of ~$5500 - but that wouldn't actually be enough to live on. Or we could raise some of the other taxes that I threw in the mix above to get to your GNI and raise the tax free threshold. But my real point is that the CCT is a horrendously ill considered tax that will leak like a sieve and not collect anywhere near the revenue that GM claims. So if you want a GNI you need to pay for it with a more efficient tax base. (I don't think you'll get many takers for a 40% flat tax rate though, which is what it would take were it done by income tax alone......)
Kirsty, Even you are a
Kirsty,
Even you are a parasite. We all are.
Though I take it you mean a parasite in terms of sucking you dry rather than anything else.
Elley- just quickly, my partner
Elley- just quickly, my partner stays at home with our children while I work to pay for us all.
I don't take WFF as I would be a hypocrite if I did.
We don't have much cash to spare, but no-one forced me to have children.
have a nice weekend.
Kirsty- I thoght MH was
Kirsty- I thoght MH was hard-core....but you're on another level!!
Chris B, yep I understand
Chris B, yep I understand how Gareth calculated it - so how do you get $8.5b?
I also appreciate your point about CCT leaking like a sieve - not much different at all to the current situation with PAYE and Company Tax for all those individuals and entities able to structure their affairs presently. In fact, I'm assuming CCT would be better because all land, buildings and vehicles (all things registered in NZ) would be captured.
Ask yourself why farmers complain so loudly about local government rates - and hardly say a word about central government taxes? Exactly.
I imagine many property/land speculators would sell down their assets and head offshore with cash, buy gold and shelter it in a tax haven etc. - and to that I'd say great!!!! Then normal, average, working Kiwi families who just want a home (as opposed to a tax shelter) will buy those property assets at a discounted price from current market value and the tax on their lower valuation will be paid.
As far as the transfer of assets to an offshore holding company etc. scenario - it's much what the big Aussie banks tried recently and lost on - so no, as long as the law is clear about what is legal and what is tax evasion - then I don't imagine most law abiding asset holders would chance it. They are more likely to sell up and exit.
Kate said <i>“…all land, buildings
Kate said ""¦all land, buildings and vehicles (all things registered in NZ)"
OK, I agree land and buildings are harder to hide. Vehicles might be possible through road registration but they are a bit of hassle to value. But that's not a CCT tax, that's a property tax + perhaps a registered vehicle tax. Lets call a spade a spade. Now we could devise a system involving a GNI that used these rather more orthodox and less leaky taxes, but the total taxable asset base is now a bit smaller than Gareth Morgan was targeting. Nicking some numbers from the land tax thread and including ~$500bn for buildings (largely housing stock) gives us somewhere in the vicinity of $1 trillion in property (with the $50,000 per hectare threshold that Grimes used). I'm going to flat-out guess that the total capital value of vehicles in NZ is no more than $100bn. So to get to Gareth's stated $14bn price tag would require a 1.5% property/vehicle tax. Interestingly the GNI adds a twist to the "granny's cottage" argument on land/property tax. As long as granny is in a property with a value less than $660,000 then the GNI totally covers her property tax. The downside is this means we can't get rid of future NZSuper liabilities at the same time. This could otherwise have been another overlooked +ve effect of a GNI.
Of course, this is a highly redistributive tax and there would therefore be some heavy losers from the status quo. Landlords would get absolutely caned by this (I'm not particularly perturbed by this but National will be), and this means renters would too. Farmers and Maori could be big losers too - depending on whether a minimum land value threshold was included. So would classic car collectors and heavy plant contractors. And every iwi in the land would sue on treaty grounds if the government tried to charge tax on Maori land. But nonetheless "“ GNI partnered with a different and better tax than CCT could work.
However my point has always been that CCT in Morgan's proposed form would fail to collect enough revenue to balance the books and would discriminate against unsophisticated asset-owning PAYE earners in favour of the shysters and the moneymen. It should be consigned to the dustbin post-haste.
Kate and anybody else interested
Kate and anybody else interested "“ if you too wish to play "design your own tax system" the the data you need is largely here (link 1) and here (link 2) . Kate - if you really want me too, I can let you have the full calculation for the $8.5bn figure (actually $8.1bn if you do it more accurately than I did yesterday in my head). But frankly taxation arithmetic is deeply turgid stuff and I don't want to put everybody else off this thread!
Hi Chris, yes Maori land
Hi Chris, yes Maori land in multiple ownership would be a problem - just as it is a problem where LG rates are concerned. However, now that the government is settling more and more Treaty claims - the argument becomes less and less strong. These joint Maori owners should begin to turn to their iwi/rohe for assistance and/or purchase by the local tribal hierarchy.
I agree - the Big Kahuna is a very redistributive tax - and it highly favours the average home owner/family. If the average house value is $360,000 - then 1.5% on that is $5,400 - and if a 2 parent family - then their GNI is $20,000 and their income is flat taxed at 25%. So, to our young families - welcome back to New Zealand - we've stopped milking you for all your worth!
This average family are probably also < 40 years - exactly the age at which we would like such people to think about becoming small business owners and hence, future employers.
That is one of the big benefits I see of this scheme which so favours 2 parent families in that age group. Presently we are not growing new business entrepreneurs in the under-40 year old age group (aside from residential landlord/property speculators!) at the rate at which I think we should be. Indeed, instead we are exporting those families at an unacceptable rate.
I can fully see why many, many, many New Zealanders won't like it - it's a wealth tax, pure and simple, and near impossible to avoid.
And frankly - it's about time.
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Just nice morning "Bird chirrupings"
Just nice morning "Bird chirrupings" before the storm.
Our own unbalanced economy can not endure international economic storms for much longer. As I wrote many times and made proposals, the country needs an urgent, revolutionary approach to solve pending national problems on many fronts.
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