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Alex's politico-economic blog roll: Raise the retirement age; 50% top tax rate; Public benefits of private ownership

Alex's politico-economic blog roll: Raise the retirement age; 50% top tax rate; Public benefits of private ownership

Here's my politico-economic blogroll for the week to December 10. Not much from the economics blogs this week. Maybe they were working and being productive.

From the left.

1. Abolishing gift duty deemed urgent. Labour MPs are pretty annoyed about the urgency in Parliament this week. Walking around the place you can hear them all muttering under their breath about how unjust it is they have to be here while Charles Chauvel gets a nice holiday in the Americas.

Labour Finance spokesman David Cunliffe blogs on Red Alert that the govt's legislation for the abolition of gift duty was one of the first to be rushed through.

That’s right, at a time when Kiwi families are doing it bloody tough, when the recession is biting this year worse than last, when top earners have had two rounds of generous tax cuts, and when the government is confronted by evidence of large scale tax avoidance, their priority is abolishing gift duty.

Making it easier to transfer assets to the trusts or the kiddies (on lower tax rates) above the existing threshhold of $27k each per annum.

Surely not a prioirty in the Mana electorate, not a priority in New Lynn, nor quake-ravaged Christchurch.

Surely not an example of personal responsibility – where everone pays their fair share.

Surely not bringing relief to the squeezed middle. 

For National it is clearly a prioirty to bring yet further relief to the top.

2. Lift the retirement age. Marty G at the Standard is in favour of raising the retirement age to 67, saving NZ$1.5 billion. This comes after the retirement commissioner proposed raising the age (now 65) by two months a year from 2020 so it is 67 by 2033. Key and Goff are not having a bar of it though. Populists.

We have to face the reality that the retirement age should rise. Otherwise we are going to be carrying an exponentially growing cost from the combination of the aging population and rising life expectancy – devoting more and more of our wealth to supporting people who otherwise could support themselves.

I would rather we were using that money to support education, R&D, and clean tech. These are vital areas for our future that are being under-invested in while so much money is being taken up in super payments.

3. I like big bills and I cannot lie... Marty G also proposes a new tax structure. It includes 50% income tax for those on NZ$100,00. Yikes. That's Muldoonish (may have just created a new word there). Go on Marty, start a new left wing party and campaign on that buddy.

He starts off by saying govt brings in about NZ$60 billion in tax each year.

A better system would begin with a guaranteed minimum income. If every taxpayer received a tax credit of $250 a week, that would form a minimum income of $13,000 post-tax a year for everyone. That’s at or above the level of most benefits and more than most families’ Working for Families – and not far from the post-tax individual poverty line ($15,000 – most adults with incomes below $2,000 will be living with others on higher incomes, so would avoid poverty).

Of course, that’s big bikkies. 13,000 times 3.1 million taxpayers is $40 billion.

About half of that is going to be paid for by more or less eliminating the benefit/super/WfF/student assistance system which isn’t needed any longer, apart from topping up some special cases.

For the remaining $20 billion, some could be raised by making the income tax system more progressive, say starting at 10% and rising to 50% by $100,000. 50% isn’t a crazy top tax rate – its typical of many other developed countries and we got along just fine with much higher. The net tax bill for people with incomes under $100,000 would be lower than it is now even if the income tax on their earnings was higher because they’ve got the minimum income, and you could tweek the rates and thresholds to whatever point you like.

He likes Gareth Morgan's Big Kahuna idea too

The rest of the gap would be filled by a comprehensive capital tax like Gareth Morgan suggested in his ‘Big Kahuna’ idea (this is a tax on owning capital, not on capital gains) or a land tax on the Georgist model (the philosophy of the Georgist model is that an owner of land is depriving everyone else of the ability to use it, so they owe a rent to the rest of society). It would take only a 1% capital tax to fill the gap or about a 2% land tax.

Yeah, that’s going to be a lot for people with large capital or land assets. For example, say you’re a ex-currency trader with $10 million worth of property in New Zealand, you might be looking at a $200,000 per annum bill (you would be allowed to defer taxes, with interest).

4. Smart Goffy, smart...Rob at The Standard thinks Phil Goff's squeezed middle classes speech was a smart one. National MPs had great fun in the house this week explaining how similar the title to Goff's speech was to one given by new Labour leader Ed Milliband in the UK given a few weeks earlier.

This is smart work from Labour and Phil Goff. Squarely targeted at a middle New Zealand that saw little of National’s tax cuts and far more of their job losses and rising prices. Maintaining the economic line set out at Conference that allows for more hands-on direction of the economy. A focus on a “clean, green, clever economy”. Honest about the challenges and not taking the easy route of impossible promises. And pointing out the obvious, that National has failed to deliver on the economy, and has no viable plan to do so.

If I have one criticism of the speech, it is that the genuinely poor deserve as much air time as the “squeezed middle”, much more than the single throwaway line that they got. Working for Families lifted children out of poverty – be proud to build on that legacy! But beyond that, and of course a desire to see detail that will have to wait for the policy of election year, I have little to fault. I’ll be proud to be backing this Labour Party into election year.

5. With the Christmas spirit? Russel Norman writes at Frogblog how the Greens opposed the first reading of Peter Dunne's Taxation and remedial matters Bill because it would abolish gift duty.

Gift duty was designed to prevent people giving away all their wealth on their death bed to avoid paying estate duty. Estate duty was abolished in 1992.

Inland Revenue estimate that New Zealanders today spend up to $70 million a year on fees to set up gifting programmes to avoid paying the duty. (Gift duty kicks in when people gift more than $27,000 per annum.) As a result, gift duty only raises $1-2 million in tax revenue each year. If you believe IRD’s figures, gift duty is a very inefficient tax that serves only to make lawyers and accountants rich, so shouldn’t we get rid of it?

Maybe, but tax efficiency isn’t the only way to measure the worth of a law. Gift duty has incidentally acted as a check on the amount people can move into tax avoidance vehicles like trusts. Trusts can be used for the purposes of tax minimisation, defeating creditors, lowering personal worth to qualify for Working for Families, or depriving partners of their matrimonial property rights.

6. Get rid of investment clauses. No Right turn has a go at investment clauses in US free trade agreements. We're negotiating one with them at the moment.

One of the worst features of modern free trade agreements are investment clauses. First emerging in NAFTA, these allow foreign companies to sue governments for profits "expropriated" by regulatory changes. Quite apart from the practical effects, which have seen the US government sued over its efforts to prevent the spread of BSE, the Canadian government sued for regulating dangerous fuel additives, and the Mexican government sued for demanding companies clean up their toxic waste, such clauses are also objectionable on principle.

They basically say that democratic societies are not allowed to regulate where it might cause someone to lose money - even where such regulation is clearly in the public good. Such clauses freeze regulation and forbid us from acting on new challenges (or responding to old ones once the public will is there). The only people who win from them are sociopathic corporations who want to pollute, lie, and sell us unsafe products.

From the right

7. You watching Phil? David Farrar at Kiwiblog says Labour should take note of Obama's tax cuts....

This week Obama stuck a deal with Republicans which sees him try to revive the US economy with tax cuts instead of extra spending. Labour in NZ should take note. Obama has agreed to:

  • Extend the Bush tax cuts for two further years which were due to expire at the end of 2010
  • Reduce for one year the Social Security payroll tax from 6.2% to 4.2%
  • Increase the threshold for the death tax from $1m to $5m ad reduce the rate from 55% to 35%

It will be interesting to observe the President’s poll ratings in the next month.

8. Raise the age. Farrar too thinks we should raise the retirement age and he likes the new Super formula being propposed.

The compromise of having the increase be halfway between the CPI increase and the average wage increase is excellent. It means that in real terms national super will still grow pretty much every year, but that it will become more sustainable.

NZ has the most generous public superannuation scheme in the world. Those currently retired and soon to retire should continue to get it. But those retiring after 2025 (my preferred date) should be on a new scheme along the lines outlined by the Commissioner.

9. Privatise the bastards. Yes same into as last week, but Roger Kerr has another post on the 'public benefits of private ownership'. Go on Roger, start a new right wing party with Don Brash...

At the heart of socialism is an ideological belief in “public ownership of the means of production, distribution and exchange.”

Like Karl du Fresne, I am amazed at the persistence of this belief in New Zealand.  Around the world governments have been progressively pulling out of owning commercial businesses for over 25 years.  Even Cuba has embarked on privatisation this year.

There is very broad agreement among economic researchers that privately owned businesses, on average and over time, outperform publicly owned ones.  This is an empirical finding, not an ideological one.

A large number of other myths about privatisation persist in New Zealand.  For an elaboration and a rebuttal, see this report for the Business Roundtable by Phil Barry.

Governments have important roles to play in the economy.  We need them to focus on these roles and to perform them well.  We don’t need central and local government politicians to be distracted from them by trying to run commercial business.

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31 Comments

#3 - 50% over 100K would encourage a lot of people to go work part-time. That's what hubby and I both did after our first child was born and the top tax rate wasn't even that high. We figured we might as well have more time with our kids while they were little than work full-time, get taken a good chunk of the top bit and have to pay crazy amounts for daycare. Worked beautifully for us as a family, but certainly didn't work as far as productivity is concerned.

Comparison with other countries: I only know about France and the top tax rate is 40% above Euros69,783 (2010 data), in other words 40% above around NZ$140K based on the average long-term exchange rate so I don't really agree with the "50% isn’t a crazy top tax rate – its typical of many other developed countries" statement...

Part time...I would have said not....you maybe a fairly unique case....Ive never met anyone else who made that decision.

Compare apples with apples....Whats the average pay in France?  That 100k is about twice the average NZ wage I think...

In the UK its 50% on 150k+ Sterling, 4 times? the average wage, so yes that kick in rate in NZ seems low....$150K NZ seems more in line....but I dont know many NZers actually earn that....

A quick look at wiki shows top tax around 40% seems more common....50% seems on the high side.  However there is income tax and then there are additonal taxes, in the UK there is National Insurance to pay as well as income tax and VAT (GST) at 17.5%....So total tax needs to be seen.

Personally I dont see a higher rate at $100k too bad, in effect someone on that wage has considerable disposable income as an individual....assuming single, or the partner works....

regards

Steven, if you want to compare apples with apples you can't say that National Insurance is a tax. Yes, you do pay out of your wage for it but you are covered by the NHS as a result for example, and going to your GP in the UK is free (I lived & worked in the UK for 4 years). It is not a tax, it is a service that you pay for and although it is compulsory, it does cover you for something. Here, if you want medical cover you need to take it privately, it is excessively expensive and still excludes many basic things (eg, my company used to pay for a cover plan for me, not even the basic one but it only covered 1 dentist check-up visit a year and nothing for glasses/contact lenses which I need).

In France, you also do get a portion of your income taken away BUT again, it is used to guaranty your retirement income until your death (not super, a real retirement similar to KiwiSaver in some ways I suppose except it's not individual but collective and you know what you'll get every month until you die when you retire); it also covers ALL medical expenses (every medical cost - GP, dentist, optician, specialist, surgery etc in France - is refunded) and other things (eg dole etc).

To answer your question, surprisingly enough the average salary in France seems to be around 22KEuros which is about the same as here after conversion (I saw some stats not long ago but don't have the link on hand).

And no, I don't think we're that unique. A number of our friends with similar jobs did just the same thing (although not sure if they took taxation into account but at a guess, probably). Both parents chose to go part-time. Personally I am not interested in working my fifth day for free; it is discouraging from working hard more than anything. In fact, it wouldn't even have been for free. Taking into account daycare * 4, I'd have been paying to work that 5th day. I'd much rather go to the park with the kids and enjoy pretty much the same disposable income and a great lifestyle :)

Elley,

 Despite its misleading moniker, National insurance in the UK was introduced  to pay for state superannuation, NOT the NHS (which is funded from general taxes). Super annuation in NZ comes from general taxation so the comparison is valid.

Of course balancing benefits/services against taxation is neccessary for any truly valid comparison - but this is an almost impossible task, given the myriad of different ways countries slice their cakes...!

Ah, my mistake sorry! Thanks for the correction.

The public generally needs to understand and lobby for governments to take the emphasis away from taxing income (currently 40% of government revenue) and profits (currently 14% of government revenue) - and to move it to other classes - such as transactions, resource use, excise taxes (liquor and tobacco) and capital stores.

Income and profit are the engine rooms of the economy.

THERE ARE A;LTERNATIVES.

http://www.garethmorgan.com/Pages/News/Content.aspx?pid=188 

I would comment that the above collection of reports is the most nonsensical nonsense i have read for some time.

"It will be interesting to observe the President’s poll ratings in the next month."

I take it he means down...

this isnt actually a tax cut to stimulate....its not taking a tax cut away....so I suppose there will be zero effect in terms of the tax cut.....Unemployment is extended 13months given teh desperation of those Americans....its a abd deal though...the crazy GOP is aiming to kill everyting and anything that isnt their top 1%.....they will destroy America.

regards

6. Is the one I dont like....that should be excluded...

I dont see how a Nation can be or should be sued because it decides on its own legislation....if thats the case throw it out.

regards

1. What did they expect? National has a right wing section thats wants things, just as when Labour were in power the left wing wanted things....and Im sure got it.....

regards

What annoys me Alex is tax and perhaps you could explain this further.

I work in sales so my income is directly related to my output, so here's how it works for a sales person.

My business makes a  sale $115.00

GST $15.00

Business Gross $100.00

My cut 15% of gross turnover or $15.00 (net)

My Tax @ approx 30% of $15.00 or $4:50

My net = $10:50

For every $10.50 I bring in for myself after tax, I pay the tax man $19.50 (GST + tax) or for every $1:00 I earn I pay the tax man about $1.90 to the government and then from every dollar I spend an additional 15% is GST tax is pay making the ration 1:2.4.

How can government claim my tax rate is 30% when I actually pay over 100% of my earnings in tax.

Please somebody explain if I have my numbers wrong.

and I probably do.

RB : The GST on your goods/services is paid by the customer , not by you . You simply collect it , for the government . It is not an expense to your business .

So it is nonsensical to compare your average or marginal personal income tax , to the GST paid by your customers in their  transactions with you .

That's wot I reckon . ........... But I am a bit thick !

No GBH, sorry. The point is he has created far more tax revenue than he receives.

What happens if he doesn't bother to sell as much? This is the disincentive effect of excessive taxation. People have choices and there comes a point where you just stop.

You find a way to earn less but keep more.

Go Fran!

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10693466

Agree with all except the capital gains tax.

"Agree with all except the capital gains tax."

Of course you disagree with that.

But if you were facing retirement you'd disagree with raising the retirement age.

If you were a dairy farmer you would disagree with Fran O regards dairy pollution.

If you were a WFF rorter you would disagree with her views on WFF.

If you were Maori you'd disagree with the claim that your people are getting preferential treatment.

And if you were a solo mum you'd be disagreeing with what Fran said about solo mum benefits.

Everything she said is basically spot on, and the sooner this country has an absolutely HUGE anti-property rorting tax slapped on it, the better, along with all her other suggestions.

Have a nice day.

This is interesting from Fran's column:

Transparency International was alarmed that 4 per cent of its survey respondents admitted to paying a bribe in the past year. 

What form and to whom do you think these bribes relate to?

It just seems an astounding survey result.

 

My suggestion is a Financial Transaction Tax (“FTT”) on ALL Bank deposits in New Zealand.  The definition of the word “Bank” must be very very wide to include every type of institution that acts like a Bank. 

While a tax of a quarter of a cent on every dollar deposited in a Bank in New Zealand does not sound a large amount, (2.5 cents on $10.00, 25 cents on $100.00 and $2.50 on $1000.00) over a year each dollar turns over many many times and the actual sum collected over all is much much larger. The charge must apply to all and MUST NOT be tax deductible.   It is NOT a Tobin Tax.

Some people argue against an FFT on deposits saying that such a tax would be a disincentive to saving.  All taxes are a disincentive to saving.

I do not like the idea of a FTT on withdrawals because that would be very very messy when purchasing items.  An FTT on withdrawals would also be vulnerable to avoidance and evasion. 

Another suggestion has been to tax each Eftpos transaction.  The argument is that as people are willing to pay (except the old and those who are financially savvy) every time they use their Eftpos card they would be willing to pay a Government tax as well.  I don’t think people would be impressed with such an argument.  My argument against, is that an Eftpos transaction tax would tax the financially illiterate and would not collect much money anyway. 

An FTT on bank deposits is clear and transparent and affects everybody including companies, government departments, overseas owned companies and even the Banks themselves.

The Banks can collect it as they do for Resident Withholding Tax so there is no administration costs for Government.

The property bubble has burst and you won't save it by trying to scare people away from saving.

Get over your fixation with houses.

Horse feathers The Real The Man.  Pure horse feathers

Uh oh.

Looks as if we have here yet another real estate industry parasite hoping to convince herself that all is well in PI Fantasyland.

You guys are becoming a lot harder to find these days!

So, now that the NZ real estate market is falling apart, what are you going to do next? Setup a financial advisory service, perhaps?

Anyhoo, can't wait to see that whacking great CG tax soon. Not only will it kill off any last dregs dreaming about property as an "investment", but it should drive even more people to start saving cash, instead of wasting it.

Bring it on, I say, and the sooner the better.

The government should invest into the production industries first, so 50% of all real estate agents, civil serpents and loafers could be shifted - educated/ trained to work in new established sectors of production.

Where in all of this did you get an idea that I was promoting property or even talking about it. Its a tax darlings to enable Government to actually provide for its citizens' education and health. Personally I would like it to be used to reduce GST. It is worrying that people can't actually read properly though.

I thought I was smoking something when I read the tread comments on your post.
A tax is a tax is a tax what difference does it make weather you call it FTT or GST? Either way it's money going to government.
Allot of people say money going to government is good, but it's also short-sighted as government doesn't produce anything of value to export and generally doesn't create additional wealth with the funds raised (except through creating more taxes).
In the long run it would be better for the government to leave more money in the private economy because the private sector creates real wealth that leads to further tax income without the need to raise tax.

Well said  ! Government taxation  acts as a handbrake upon thrift , entrepreneurship , and innovation .

I reckon we need a much smaller government . Then there'd be less need to suck the life-blood out of productive individuals and enterprises .

The current government has continued to increase it's spending , building upon the " packages " and " entitlements " that Michael Cullen introduced , to bribe the populance to vote for Labour . National are keeping it all intact , to prevent the masses from shifting allegiance back to Labour .

National and Labour are a bunch of gutless wonders .

#2

If media commentators, pressure groups, political parties, medical ginger groups et al., can't be bothered to provide actual facts and figures i.e. the cold hard numbers to back up their claims,  then the claims they  make should be treated with the contempt they deserve.

This whole thing with National Superannuation and raising the retirement age in NZ that has been a major topic of discussion this last week, where are the numbers???? I even saw Fran O’Sullivan in today's NZ Herald get in on the act and so too did the Editor mid-week. Neither provided any hard numbers to support what they were saying. Well that's just not good enough. Everybody knows and she said it so therefore it must be true is not going to cut the mustard with his punter I’m afraid. Put up or shut up!

Thought the same  this week when Hugh P commented on `paper shufflers' in Cch council - 'Where are the numbers'  - he provided some - but I was left wondering how we compared with other countries... if there was any notion of 'best practice'.

The number alone just pandered to knee jerking... probably totally unjustified, and maybe lead to too simplistic a conclusion.

Same with Number of MPs.

Leaky homes... how many are rentals etc, does this make a difference?

Great series of charts etc on this site - but you can't beat the old pie chart for making a point.

e.g. http://dimpost.wordpress.com/2010/08/09/chart-of-the-day-elephants-in-th...

And then this one made me wonder what the administrative costs for this welfare budget were.. were they included maybe? 

Surely crucial for making comments/decisions. In this case it could justify, for example, Gareth Morgan's 'Big Kahuna' , or suggest many more solutions.

I'll shut up.

 

 

Please don't dismiss the Retirement Commission's report simply because some journalists don't reproduce the whole of its case in full.  The report itself sets out plenty of statistical analysis and evidence, and there's more in the Treasury's Long Term Fiscal Statement, to show how NZS can only continue to be afforded in its present form in future years if taxes are raised or other elements of public spending cut.  

If you can't be bothered to go and look for yourself, that's your right - but in that case, it is your fault and nobody else's that you don't know what the numbers are 

 but Clark: "Has also been willing to address targets of marginal benefit to New Zealand that could do her political harm if made public".stuff.co

Oh dear oh dear.....look what the socialists under Clark were up to...what's that line about "...wicked webs and attempting to deceive?"

Re #6 and the TPP,. This latest peice of Neo Feudalism gives foreign companies more rights than NZ citizens. Do our idiot politicians not value our sovereignty? Apalling.

The Government would be required to consult and compensate multinationals over any legislation that may affect their profitability.

 Matt McCarten makes some very good points:

" Under NAFTA, which this TPP is based, tobacco giant Phillip Morris sued the government of Paraguay for trying to put a levy on cigarettes to cover smoking-related health costs.

Similar cases have included suing to re-start a toxic waste dump, and removing plain packaging of cigarettes. So far US$326 million ($435m) has been paid by governments to corporates in compensation. Even a community that tried to get rid of its foreign water supplier because of its non-delivery lost."

 

"John Key, a successful corporate speculator himself, has announced that if the National Party is elected again then he'd see that as a mandate for selling off the rest of our public assets.

This is in addition to forming Public Private Partnerships (PPPs) to build roads, public transport, prisons and just about anything else corporates can make a guaranteed profit from. Corporates will run these PPPs of course with a built-in, generous profit courtesy of the taxpayer. Easy money if you are big enough to play.

Under the proposed TPP this corporate theft will be legally protected from any future government. When our grandchildren grow up and realise that it has all been a grand con job they'll have to lavishly compensate these corporate investors to undo it.

Be warned. Our heritage and democracy is about to be sold to foreign corporate bidders.

If the TPP corporate advocates get their way, we will not only have sold our birthright but sold out our future generations, too. Twenty five years ago we know we should have fought Roger Douglas, Richard Prebble et al, a lot harder to save our country from being sold off bit by bit."

http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10693673

Yes Matt has hit the shits on the head with this one Kiwidave...this could cost national the election and I am surprised Goofy and crew failed to see it. TPP may well spell the end of Key's image. Is he for Kiwis and NZ ....or is he a poodle for foreign corporates to play with?

"I am surprised Goofy and crew failed to see it."

Well I guess they wouldn't want to make too much of a fuss about it Wolly, considering the apalling "free for all" enshrined in the rushed FTA with China. 

Days to the General Election: 27
See Party Policies here. Party Lists here.