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Gareth Morgan proposes Comprehensive Capital Tax, 25% flat tax, replacement of all benefits (Update 3)

Gareth Morgan proposes Comprehensive Capital Tax, 25% flat tax, replacement of all benefits (Update 3)

Economist and fund manager Gareth Morgan, who is a member of the Tax Working Group, has proposed a radical tax restructure to the group's final public conference that would impose a Comprehensive Capital Tax (CCT) on all land, buildings, plant and equipment to raise NZ$19 billion.

(Update 3 adds link to fuller Gareth Morgan opinion piece detailing the idea.)

This money would then be used to create a flat income tax rate of 25% on all corporate, personal and trust income. It would also be used to provide each adult with a NZ$10,000 guaranteed minimum income to replace all benefits, which would in effect mean that the first NZ$40,000 of income was tax free.

GST at the existing rate would remain and the tax change would be revenue neutral, meaning not cuts to education and health spending. Morgan said the current tax system was broken and needed a complete overhaul: "The big kahuna."

He said high net worth individuals were now paying very little tax and a whole industry of tax advisers, accountants and lawyers were earning livings out of inconsistencies and loopholes in the various systems in place now.

"The biggest suckers in the tax system are PAYE earners. Idiots. In order to avoid a revolt, the government has allowed them to have a couple of rentals, as a sop," Morgan said to laughs from the audience of 200 tax advisers and experts gathered for the conference in Wellington.

He said a Comprehensive Capital Tax was a true broadening and flattening of the tax system. "A land tax is a wimpish," he said. This tax at 1.25% on NZ$1,500 billion of assets would raise NZ$19 billion, which compares with NZ$27 billion of income taxes now.

Morgan said the tax would operate on an accrued basis and could be deferred, but would incur an extra 'cost of money' if deferred. Valuations of assets would be done using indices rather than specific valuations. The guaranteed minimum income would mean the removal of sickness benefits, unemployment benefits, New Zealand Superannuation and the Domestic Purposes Benefit. "You cannot do this by halves," he said.

Morgan said individuals homes should not be exempted, but if there was any political push for exemptions there should be a threshold level above which values would be taxed to ensure homeowners didn't bury wealth in expensive homes they lived in. Morgan said this reform from a 'blank sheet of paper' would deliver comprehensive tax and benefit reform, reduce effective marginal tax rates, eliminate benefit fraud, remove large swathes of government bureaucracies and destroy the tax advice industries.

"Tax advisers might have to get a real job," he said. He was applauded. Meanwhile Motu economist Arthur Grimes commented on idea in his presentation on land tax, arguing it would be more effective because land was immobile and New Zealand  businesses weren't investing enough in plant and equipment.

"Taxing land is taxing an asset that it immobile. Taxing equipment is taxing the very thing that we're short of. We're very capital shallow. That's the last thing you'd want to tax more," Grimes said. "Some times half way there is better than going the whole hog. "

Here is the full presentation below of Morgan's proposal. Gareth Morgan TWG - Tweaked

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