Finance Minister English and Revenue Minister Dunne ask for submissions on fairness of NZ's tax system

Finance Minister English and Revenue Minister Dunne ask for submissions on fairness of NZ's tax system

Finance Minister Bill English and Revenue Minister Peter Dunne are calling for submissions on the fairness of New Zealand's tax system.

Two papers were released by the IRD today detailing its issues with current tax laws for livestock valuation and mixed use assets.

See the release below from English and Dunne:

Two issues papers released today for public consultation continue the Government’s focus on ensuring fairness in the tax system, Finance Minister Bill English and Revenue Minister Peter Dunne say.

The issues papers, which were announced in Budget 2011, provide options for making the tax system fairer in two areas:

Livestock valuation - this paper presents options for fairer rules covering livestock valuation elections.  Mr Dunne says the current rules appear to be too loose, allowing farmers to switch between valuation methods providing an unfair tax advantage.

Mixed use assets - this paper provides options to address unfairness in the tax treatment of assets such as holiday houses used for both private and income-earning purposes.

Mr Dunne says unfairness arises when some owners claim their house is available for rent during the significant periods of the year the house is empty.

“This provides them with a basis for claiming tax deductions for expenses relating to the period the property is empty. Claiming these deductions could be regarded as unfair, particularly if the owner holds the asset primarily for private enjoyment,” Mr Dunne says.

Officials are also working on a third issues paper focusing on the tax and social assistance treatment of salary traded off for other benefits. This will be released separately once policy analysis is complete.

“Tax dollars are needed for a wide range of government services such as health, education, justice, lowering the road toll, reducing family violence, immunisation programmes and conservation,” Mr Dunne says. “Taxes also pay for work in Christchurch on roads, hospitals, schools and emergency recovery.

Mr English says it’s important that everyone pays their fair share of tax.

“By tightening the rules around property investment, aligning the top personal and the trustee tax rates and by ensuring greater fairness in social assistance programmes, Budget 2010 had a strong focus on fairness and integrity of the tax system.

“Today’s announcement continues that focus,” Mr English says.

The closing date for submissions is 30 September 2011. The two issues papers and fact sheet are available on the Inland Revenue policy website at: http://taxpolicy.ird.govt.nz/publications/year/2011

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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An exercise in rearranging the deck chairs?

This horrible word " fairness " has cropped up , yet again . The vision of Wild Bill is that we should all pay our " fair share " of tax . ...Absolute twaddle !

.. the real question is , " how beneficial or how much of a hindrance is the NZ tax system to the productive sector , to businesses and to those paid employment  ? "

" fairness " is not the issue , if NZ Inc is to avoid insolvency .

 Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail.

 

A bit early to be so intoxicated Walter , that you completely missed the topic at hand :

NZ taxation system : Fair or unfair ?

... crikey Kunzie , you're getting worse than me for running off on a tangent . Speaking of which , you are wrong of course ... the world is very much alike a well worn & loved old sofa , it will recover quite nicely , if we give it a little TLC .

 Roger says: .." fairness " is not the issue , if NZ Inc is to avoid insolvency .

I say: Good ethic and moral standards are to avoid insolvency – so what is the problem Roger ?

 

Agree

 Fairness-- don't get me started.  Way back when I employed two people, I commented to a mate of mine who employed two hundred plus that my paperwork and returns to the IRD were identical to his and I didn't have the staff to do the returns.  They were all done at the days end. Instead of having a beer or three I finished work and started work unpaid for the guvmint. 

Perhaps BE could bear in mind that the majority of job creation [and hence tax revenue] is by small business and think of ways to help business creation instead of ever more inventive ways of extracting more juice from the lemon.

 

The Clark / Cullen government was the " we hate all business "   era .

.....And the Key / English administration may be remembered as the " we love business , but only if you're too big to fail "   era .

... small business ? ... oh   dear , how sad ! ... sorry .

Surely we are in the "we hate middle class families" era?

I think its been that way for decades, but with the swing voting block getting bigger thats not so pronounced as it was (maybe).  By that I mean in the past Labour knew the middle class wouldnt vote for them, so hammered them for tax giving tot he "workers" and National knew it as well so gave tax breaks to the top end.....more fool the middle class for voting so stupidly is all I can say.

regards

Gummy you are full of it, NZ regulary featured(s) as one of the easiest places to start up and do business....

regards

Those " research " papers are written by people who don't live here . NZ has a glowing reputation in the USA , Europe & Asia as a safe place , low crime , little government interference in business , clean & green ....... need I go on !

.. do they bother to mention the horrendously high suicide rate of teenagers in NZ , or the incredible imprisonment rate ? ...... All is hunkadory and peachy in Godzone is it , steven ...

..... take all those off-shore generated articles with a pinch of salt .

regards

"Te Tare Taake"   -  while you tarry - we take !

time they changed their silly slogan - my first suggestion is " We Tax Harder"

Yes good point and suggestion. What about "Taxing Rich Pricks Harder To Pay Your Welfare"

Or in the case of holiday homes being subsidised, "taxing everyone else to give tax breaks to rich pricks"

 Oh yes David, always cooking up something !

Yes good point and suggestion What about  taxing 100 super rich pricks harder, to fight inequality and to pay minimum wages for 50’000 hard working youngsters ?

It's very good that they are asking the question, the best thing Bill has done in a while.

Especially as interest rates look like they will be down for a very long time, the government doesn't need to be subsidising some of the things it currently is, with the tax breaks that are available.

The example above of holiday homes is pretty easy to argue the governmet subsidising people to own them is a very poor use of taxpayers money, the benefit to the country is virtually nill, so why do it?

That money could be much better spent funding research and development for example, or just paying off government as well is a much better use.

I'm keen on a fair tax system ie everyone pays the same amount into the kitty.

Exactly

Around 1968 Muldoon ran out of Government funding. NZ was about to internally default.

"Just this once we will call in the self employed taxes 12 months in advance. We will call this Provisional Tax" stated Muldoon.

This action saved the nation. The teachers and others got paid.

But this new tax worked too well. It became a punitive monster. This action soon stuffed the nation.

From about 1968 forward very few small enterprises were able to fund their own growth purely from retained earnings. Growth mainly had to be funded from debt - even if the trading revenues were large. Work it out for yourself!

Muldoon's Provisional Tax is the reason why growth business's like Charlies and many software Co's are sold to overseas investors. Bernard could not understand this as these sales were announced.

By selling these great business's the shareholders and board could see some tangible returns for their efforts. For the first time they can afford something better than 2 Minute Noodles. The bank debt on their home (that secured the business loans) was fully paid down. No more sleepless nights.

The only way for NZ to once again have a strong business sector (JOB CREATION) is for companies with established premises and honest trading history - to be exempt from Provisional Tax.

What we have now is just crazy. A legacy from a ----- Muldoon

Take note Bernard

I don't understand your reasoning Rudderless.

Provisional tax allows the taxpayer to spread their income tax over a period of time (much like PAYE payers) rather than be faced with a lump sum after the end of the tax year.  It allows better planning and management of cash flow.  It is not payable if the business is not expected to make a profit.

All sounds good until you under estimate your income by having a good year and have to pay UOI  (use of money interest)  to the IRD. Try getting the interest double figures IRD charge in the bank.

I don't miss my business. The best move ever was selling it. 

 

 

 

PAYE (Pay As You Earn) Tax is just what it says. Tax payable on recent actual income.

Self Employed pay their Terminal Tax based on revenue generated in the most recent actual reporting period. This is fair.  Prior to about 1968 it was simple - and fair.

Muldoon's Provisional Tax is based on the recent Terminal Tax history - and it is payable in advance of the existance of that forward-fantasy revenue actually existing.

I invite experts on this Tax and its advanced funds drain-off to comment. Provisional Tax robs business retained earnings from the rightful owners? And the effect is low growth. Fewer jobs.

How well run is the government?  If we all expect to pay 30k in tax but take out 60k then it isnt going to work.  If the government intends to spend 38 billion on roading while its running a deficit its hard to believe its, prudently managed.

I think the Minister is spreading misinformation regarding the livestock schemes: getting an advantage by switching between schemes (ie, in and out of the Herd Scheme) is a casino, as easy to get wrong as right, and the only farmer probably consistently trying to do it was government farmer, Landcorp (according to NBR).

The more interesting thing in Mr Dunne's statements here is that, for him, fairness apparently equals pay more taxes. So much for limited government, Peter. So much for those tax cuts, Mr English.

I think the Minister is spreading misinformation.

Sounds more like lying to me.

The headline would be hiliarious if it wasn't such a tragedy.

The govt has made it explicitly clear that they have no interest in reforming the tax system to make it fair.  Their rejection (in emotional language) of a CGT or other form of tax on assets shows that they are dedicated to maintaining one of the unfairest tax systems in the OECD.  Designed to make the rich richer, and keep the poor poorer. & thus leading to a rapidly growing gap between the haves and the have nots. 

Cheers to all.

 

True, but if they are't going to put some taxes in that would help to balance things, given how low borrowing costs are going to be for a while.

Then the least they could do is make some changes to remove the tax subsidies on things like holiday homes are getting, and hopefully rental properties too.

The LAQC change was a complete joke, when you are just going to create a new company type that can do virtually the same thing.

Sure, I accept that there are glaring inequities in terms of holiday homes, where the rich can rort the tax system with impunity. 

However, the changes that are made are totally cosmetic.  The depreciation & LAQC examples show this. 

The language is all how the system is being made "fairer", but only thru minor tinkerings.  This is aimed at keeping the masses quiet & keep paying their taxes, while the rich can keep creaming it & avoiding tax. 

Cheers

 

Yeah you are probably right I wouldn't get my hopes up high that anything significant will come out of it, it probably is more about appearing to do the right thing, rather than actually doing it, you can live in hope though.

Philly - spot on. If they wanted to be fair they have had ample opportunity with TWG, SWG recommendations that they could have implemented. This is just electioneering and probably the result of focus-group activity showing Labour gets some appeal with the fairness aspect of their proposal, and this is meant to counter it. Yawn. 

LR: Exactly Les. "dog whistle" politics.

A number of years ago the IRD had the slogan "Its our job to be fair" They were required to stop using this slogan as there job as not to be fair but to collect the taxes required by the various Tax Acts.

Given that Taxes and Social Welfare are interdependant, fairness becomes a moot point.

These holiday home loopholes have come about because the government wants to tax everything, i.e. if you let you home out for the Rugby world cup then you will have a tax liability.

This is only fair, but if the house is damaged which results in a taxable loss due to the Repairs and Maintenance, this too is only fair.

If I have a holiday home and rent it sporadically, I have to pay tax, its only fair that I can deduct the expenses.

The problem is that in the desire for revenue collection, you have forced people to have to account for stuff they they didn't want to in the first place and since they have to hire an accountant then they will expect to get all the deductions allowed. Then everyones doing it.

The law of unintended consequences will always ensure perverse outcomes, that will be tried to be fixed by more legislation which will only ensure more perverse outcomes.

A lot of people can't be bothered but are made to be bothered and then they act quite logically and creatively.

I have no problem with claiming expenses for a holiday home, if it is rented out.  However of course at then end you should pay a tax on the capital gain. 

The existing system fails to do this, which is why it is such a rort. 

As far as I am concerned, if you can claim expenses against your taxes, then you should pay tax on the gains -whether they be profits or capital gains.

Cheers to all

Fair - for every dolar of PAYE collected the agricultural sector pays a cent

I don't know what the best solution is but having only 17% of households pay 97% of the tax doesn't make a lot of sense. And this 17% may not be the wealthiest 17% because the rich, like Warren Buffett said can hire accountants to exploit loopholes.  Could the majority of this 17% be PAYE salaried people?

Something is also not right when 43% of households receive more from the government than they pay in tax i.e  negative tax???  We sure have a lot of takers and not enough givers in NZ.

"Could the majority of this 17% be PAYE salaried people?"

Yes, there is no CGT....so the really well off pay virtually no tax. ie there are some who dont give at all...then there are the likes of farmers who avoid tax plus load up so high with debt taht they appear to be broke that way they get WFF and social assistance....then cash out tax free when they retire...

Time to stop that.

regards

 

Here's another way of looking at it:

2275000 kiwis earn 50000 or less and pay 6.9 billion in PAYE tax.

659000 Kiwis earn 50 - 100000 and pay 8.9 billion in PAYE tax.

106000 Kiwis earn 100 - 150000 and pay 3.1 billion in PAYE tax.

58000 Kiwis earn 150000 + and pay 3.7 billion in PAYE tax.

 

 

 

 

 

 

Taxable Income Income Tax Collected ($ Billions) Average Income Tax

 

1 - 50000                        6.903           25.43%

50001 - 100000            8.949           32.10%

100001 - 150000          3.17             37.94%

150001 +                        3.788           38.00%

 

 

 

The Table above is from Treasury re 2011 Budget

 

If you add up the percentages you get 133.47% ???

Apologies, it's unclear. On average individuals earning up to $50,000 pay an average of 25 cents in the dollar tax. Those earning over $150,000 pay an average of 38 cents in the dollar tax.

If we are talking about fairness is the difference of 13 cents in the dollar between the highest income group and the lowest fair?

 

Supposing we conservatively estimate that those folk on incomes up to $ 50 000 p.a. spend 70 % of their income .... then GST @ 15 % adds in another 10 % onto the 25 % of PAYE tax . Local council rates of $ 1500 p.a. , maybe .......

........ suddenly a person of modest income is paying his " fair share " of 40 % tax to the bureaucratic machine .

Michael Cullen must be rubbing his hands with glee .... the socialist's " tax 'em til they bleed " creed lives on .

Exactly. I wouls suspect even if those on $50000 saved with Kiwisaver their spending would be more like 96%. I would suspect something similiar for incomes up to $100,000 or so.

No doubt the move from Income Tax to GST is regressive in effect. i.e. 15% of a $48000 spend  hurts more than a 15% tax on, say  a $96,000 spend. 

 

I have put together some calculations based on Treasury 2011 Budget forcasts. Who says the rich are paying more?  

 

 

Taxable Income                Income Tax & GST Billion 
 

1 - 50000                                   13.30

50001 - 100000                       14.08

100001 - 150000                      4.37

150000 +                                    5.16

 

(assumes all income groups save 4%)

Remember rent and mortgage payments which generally take up 30% or more of income have no GST .  Also WFF means anyone with kids get a lot of their income tax back.

Good point about the rent and mortgage. I had not thought of that so will need to adjust my figures.
 

These Treasury figures do not include WFF tax credits. I'll will see what I can come up with but would point out that the WFF cash attracts regressive GST when spent.

Bert, how many people are in each of your groups?  The numbers are meaningless without that. You cant just compare the amount each group pays without saying how many are in the group.

The numbers are more meaningful than Mr Farrar using Mr English's figures based on household income to show that more wealthy househiolds pay more tax. e.g. A "rich" househould earning $100,000 could be made up of 5 people earning $20,000 each - hardly "rich". I would contend that individual earnings are far more relevant than household income when you consider it is individuals not households that are taxed. Treasury figures include PAYE paid by beneficiaries including pensions.

Obviously there are a lot more "poor" people than "rich" in New Zealand. Maybe that is the point, we need more wealthy people. I would contend that when you examine fairness regressive GST and the difference in the average PAYE paid by "poor" and "rich" are important considerations. How does the tax burden on someone earning $160,000 compare to that of someone on $40,000?

One thing you cannot get away from is that wage and salary earners through PAYE and GST pay over 65% of all tax. Is that fair, because clearly the bulk of them are unlikely to own a proportionate share of the wealth of the country?

 

 

What kind of a system allows a twit like Dunne to always be in power no matter whom the actual government is. will he still be in government on his death bed. haven't we all had enough of the 'ideas free zone' that is Peter Dunne

A very sick system...the sort that is prone to being invaded by a parasite!

Right on Citizen!!

The Working For Families (WFF) 2011 tax credit is budgets at 2.8 billion. The chart below assumes that the income earners benefitting earn $1 - $100,000. How fair is the tax credit?

Contribution to Government Revenue

Estimated Tax Contribution Before WFF Tax Credit ($ Billion)

Estimated Tax Contribution after adding WFF adjustments

Income > $150,000

3.79

3.79

Income $100,000 - $150,000

3.17

3.17

Income $50000 - $100000

12.12

10.60

Income $1 - $50000

6.90

6.04

GST

15.00

15.42

Company Tax

8.10

8.10

Other Government Revenue

13.60

13.60