Government releases details of Tax Working Group; reiterates commitment to 'fair and progressive tax system''; Joyce says it's an 18-month-long rubber stamp for a Capital Gains Tax

The Government's appointed former Labour Finance Minister and architect of the NZ Super Fund and Kiwisaver Michael Cullen to head up the Tax Working Group.

This was announced Thursday by current Finance Minister Grant Robertson and Revenue Minister Stuart Nash as they released terms of reference for the group as part of one of the new Government's commitments in its 100 Day Plan.

No other members of the group have been announced yet. This is expected before Christmas.

Thursday's announcement said the Working Group should have its first meeting no later than February 2018, issue an interim report to the Minister of Finance and Minister of Revenue no later than September 2018, and issue a final report to the Minister of Finance and Minister of Revenue no later than February 2019.  These dates may be varied with the consent of the Minister of Finance.

Joyce: It's a rubber stamp for CGT

National's Finance spokesperson Steven Joyce described the announcement as "an 18-month-long rubber stamp" for a Capital Gains Tax. "Its Terms of Reference is written so that it will propose one significant thing at the end of it, a Capital Gains Tax," he said. The appointment of Michael Cullen as chair meant there was "no pretence" of independence about the group. "Sir Michael is many things but a politically independent voice on taxation policy he is not."  

The group is being asked to report on:

  • Whether the tax system operates fairly in relation to taxpayers, income, assets and wealth
  • Whether the tax system promotes the right balance between supporting the productive economy and the speculative economy
  • Whether there are changes to the tax system which would make it more fair, balanced and efficient, and
  • Whether there are other changes which would support the integrity of the income tax system, having regard to the interaction of the systems for taxing companies, trusts, and individuals.

Things the group won't look at include:

  • Increasing any income tax rate or the rate of GST
  • Inheritance tax
  • Any other changes that would apply to the taxation of the family home or the land under it, and
  • The adequacy of the personal tax system and its interaction with the transfer system (this will be considered as part of a separate review of Working for Families).

This was the announcement:

Finance Minister Grant Robertson and Revenue Minister Stuart Nash today announced the Terms of Reference for the Tax Working Group and that the Group will be chaired by Sir Michael Cullen.

“Our 100 Day Plan includes the establishment of a Tax Working Group. The Working Group will consider changes that would improve the structure, fairness and balance of the tax system,” says Grant Robertson.

“This Government is committed to a fair and progressive tax system. It is important that New Zealanders have confidence in their tax system and know that everyone is paying their fair share.”

“At the moment the tax system appears unfair – for example, it doesn’t treat income from speculation in housing as it does income from work. We want to consider how we can create a better balanced system and can encourage a shift to investment in the productive economy.

“Individual wage-earners, businesses, asset owners and speculators should pay their fair share of tax. Right now we don’t think that is happening. This working group is not about increasing income tax or the rate of GST, but rather introducing more fairness across all taxpayers.

“The Working Group will also consider how the tax system can contribute to positive environmental outcomes and the impact of likely changes to the economic environment, demographics, technology and employment practices over the next decade.

“As former Minister of Finance from 1999 to 2008, Sir Michael’s credentials are impeccable and he will be a huge asset to the Working Group.”

“The other members of the Working Group will be announced before Christmas. They will include a diverse range of tax and finance experts and representatives of the business and wider community. The Working Group will be supported by a secretariat of officials from Treasury and Inland Revenue and have an independent advisor to analyse the various sources of advice received,” says Stuart Nash.

“Final recommendations to Ministers are expected by February 2019. As promised before the election, any significant changes legislated for from the Group’s final report will not come into force until the 2021 tax year.

“It is important to ensure that all sectors of the New Zealand economy can feed into the Working Group’s processes and that all relevant perspectives are considered.”

“As we promised during the election campaign, certain areas will be outside the scope of the review, including increasing any income tax rate, the rate of GST, inheritance tax and changes that would apply to the family home or land beneath it,” Grant Robertson says.

“We also want to thank our government partners, the New Zealand First and Green parties, for their input and support of the Terms of Reference for this important piece of work on the future of our tax system.

”This review is a core part of the government’s programme and I’m confident it will deliver recommendations that will enable us to put in place a tax system that is fair for all New Zealanders,” says Grant Robertson.

This is the statement from National's Finance Spokesperson Steven Joyce:

The Government’s Tax Working Group announcement looks like an eighteen month long rubber stamp for a Capital Gains Tax, National Party Finance Spokesperson Steven Joyce says.

“Its Terms of Reference is written so that it will propose one significant thing at the end of it, a Capital Gains Tax,” Mr Joyce says.

“Yet Mr Robertson’s assertion on the current taxation of capital gains in the property market remains incorrect. People who buy and sell houses for a profit have those profits treated as income for tax purposes under the law today.

“So people can only assume once again that his unspoken desire is to introduce a Capital Gains Tax on farms and small businesses.”

Mr Joyce says there is also no pretence at the independence of the group with the appointment of former Labour Finance Minister Sir Michael Cullen as Chair.

“Sir Michael is many things but a politically independent voice on taxation policy he is not,” Mr Joyce says.

“Let’s face it - he was Labour’s last Finance Minister and one of the key coalition negotiators for the Labour Party.

“Nothing will come out of this group that Grant Robertson doesn’t want. And all he wants is a recommendation for a Capital Gains Tax.

“Mr Robertson would be better to dispense with the expense to taxpayers and write out his tax policy for the next election when the time comes in the normal manner.”

 

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50 Comments

It would be great if the media would start labeling this as the "parasite tax".

The result expected in Feb 19 will read something like this
'''Mr Michael Cullen has recommended'' TAXING THESE RICH PRICKS.''

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12

.. hopefully a land or asset tax. get the burden off the paye earner and onto the real dead wood.

.......and the threshold will of course be above his own income level, and asset backing!

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14

Cullen is clearly a skilful, competent person - with relevant experience as a past Minister of Finance. And he's a person with strong integrity.

BUT I would have preferred a person who is politically neutral - and NOT aligned with a political party.

The review CANNOT be seen as properly independent. That is a significant disadvantage and seems a great pity to me.

TTP

I agree. Hopefully they will mitigate this effect by bringing in someone from the right, if they must have Cullen there. But I do think it would be better without someone from either political party, as the danger is they'll simply seek to serve their core voter blocks - hard to imagine someone on the right recommending raising land tax and reducing income tax, for instance.

What's Don Brash doing these days?

His way of doing things would be too straight laced for any Political party to agree to implement. BUT he would come up with a fair package. Ex RB Governor

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15

“As former Minister of Finance from 1999 to 2008, Sir Michael’s credentials are impeccable and he will be a huge asset to the Working Group.”

Impeccable apart from the colossal structural deficit he left in his last term and the massive overpay made for the kiwi rail assets (Toll holdings still celebrating that coup). I guess he could be classified as the least muppet-like finance guy in Labour's inner circle, but that is hardly praise for his ability.

Not impeccable certainly no better than any other politician. Some might recall how he ducked and weaved around the wine box enquiry. Changing his opinion and stance at will as it progressed. In my opinion it was as cynical as it was conceited that he should take a knighthood. After all was he not a dedicated cloth capper and had his Government not had good reason to do away with them There used to be a story going round that Rich Prebble frequently kreduced him to tears. Wonder what that was about.

Can you elaborate on what you mean by "structural deficit"? Labour got government debt down to $20 billion which set us in excellent stead for the financial crisis. Since then National have grown that debt to $90 billion, over 400%, while simultaneously selling some of our best assets.

Elaboration here. Cullen left the country with $6 Billion deficits, forgot to tell anyone about the ACC blowout and was on track to loft debt to $70 Billion. Short memories.
http://www.treasury.govt.nz/budget/forecasts/eff2008/eff08.pdf

Sell your rental properties, NOW!

lol, good idea ...scavengers on the loose

So you can buy them?...

Yeah, na...

Yes , Mr X ... they've narrowed down the parameters of Sir Micky's tax study group so much , that the only thing they've left on the table is the Capital Gains Tax ...

... it's ironic isn't it , that we vote in Jacinda and her team , hoping for fresh faces and new ideas ... and they serve up some old cronies from the Helen Clark era ...

Would've been nice to see a taxation report written up by less geriatric dinosaurs .... Bernard Hickey ... Sammy Bill Equab ... folks with a better connection to the post-internet world ... Oliver Hartwich ...

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11

Dr Cullen. I guess he got bored of people refusing to play golf with him. Agree he's not "independent"

He is the architect of the debt/tax offset ponzi, all started by putting up the high end tax rate. Effectively poured fuel onto domestic housing speculation, which is one of the pillars of today's problem. He also paid way to much for NZ rail. Toll were pissing their pants laughing as they should of had to pay to hand it back to the tax payers. But good old Cully looked after the Railway Workshops union in South Dunedin, for all the good that did.

What was his parting shot about the surpluses that should have been there...."up yours we have spent it all"

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1. Find out the 2014 tax working group report
2. Click, File > Save as New... "2017 Tax Working Group Report"
3. Done

I wonder if they could introduce any changes earlier than after the next election by putting the proposals to a comprehensive referendum? This would also have the benefit of these issues then not threatening Labours re-election by taking the issues out of the general election.

Either way ...if it is bad then it will kick labour out on 2021

Hi Eco Bird,

The next General Election is no later than late-2020 (but could easily be sooner for numerous reasons).

So the present lot could be gone well before 2021.

TTP

They will be on their bike and out the door anyway

The man who gave us the "High Country Tenure review" comes back to haunt us.

Oh, I nearly forgot he guaranteed SCF, cost the taxpayer a small fortune, was it 1.6 billion?

True, however I tend to think that responsibility lay more with Treasury, who were supposed to be overseeing this. They were too busy being educational experts & recommending more pupils per teacher, not so worried about peripheral things like SCP & monitoring compliance.

Cullen shouldn't be alone in being blamed for guaranteeing SCF. Although Labour introduced the guarantee scheme off the back of the Aussue one, (Cullen blamed Kevin Rudd), it was the Nats in govt when this happened;

In the wake of the collapse into receivership of South Canterbury Finance, Treasury says taxpayers' will now foot the bill for all depositors of Crown guaranteed finance companies that default, including those that have already defaulted, regardless of any previous eligibility criteria in place for the Retail Deposit Guarantee Scheme.

https://www.interest.co.nz/news/50538/treasury-will-now-repay-all-depositors-every-crown-guaranteed-company-has-defaulted

And yes Philly on Treasury wearing some blame https://www.interest.co.nz/opinion/56012/opinion-treasurys-ambulance-bottom-crown-retail-deposit-guarantee-scheme-cliff-wasnt

and the SCF funds under guarantee expanded under Bill English with no prudent regulation from Treasury.

And where is the list of names of the borrowers who evidently escaped paying back any significant amount of the 1.6 billion? That money didn't just magically disappear.

Well, it Better be good , otherwise if the recommendations are rotten then it will surely be the straw that breaks this Coalition's Back in 2020 ... so let them have fun and spend our money for now!

Hard to think that Winnie will allow any form of property tax, whether a CGT or otherwise.

It will probably take enormously more than a straw and it will be absolute joy to see them spending a lot more specuvestor money. Furthermore what might be a rotten recommendation for the parasites of our economy will be very welcomed by the bulk of our workers.

One problem is that NZ's wealth is largely built on property, & selling it speculatively to each other (more recently to foreigners).
Any political party that pops the speculative bubble will be in their last term in office.
When you've got the tiger by the tail, it's hard to let go.

What a classic case of the blind leading the blind. Nothing will go through, this government is all smoke and mirrors.

The frames of reference are completely asinine given the restrictions on what they can recommend. Complete and utter sham.

The review expressly excludes consideration of any tax related to the family home or land under it.

This review is an utter joke.

Sadly, the family home term of reference negates taxing the majority of the property related capital gains made in this country. I'm still in strong favor of taxing all property related capital gains, full stop (and virtually all other cap gains, but that is a subject for another time).

I hope that they do put in a caveat stating that a "family home" is defined as the primary home that one has lived in for the majority of the five years prior to the sale. Otherwise there is likely to be some entertaining short term residencies occurring to claim family home exemption upon sale...

Politics is 'the art of the possible' any exclusions to capital gains taxes just manufacture huge distorting avoidance issues, but full coverage is not possible to get passed into law.

Answer is to institute it only on values above say 1.5million, then slowly reduce that limit and use inflationary bracket creep to 'boil the frog' and spread coverage to eventually cover all houses.

Totally agree.
The family home should be subject to capital gains & the scope of the review should be amended,
There is a basic need for everyone is to have a roof over their head, but not a palace.
The capital gains tax should only be applied to the proportion of the value of the house above the national median house price.

Family home will no doubt include the family farm - a gross distortion before they even start.

Excluding the family home before they start guarantees the whole exercise is just wasted space.

Surely they could at least debate and evaluate the trade-offs of inclusion or not ?

Excluding the family home immediately provides an incentive to invest in larger more expensive homes to avoid any tax - a diametrically opposite outcome from that sought. Madness personified !

Surely there are big issues with including the family home though. Imagine we had a capital gains tax in the 50’s and a young couple bought a home for say $10,000, and imagine if they decided to sell it now to downsize at $1,000,000. The gain would be almost a million dollars and there would be a lot of tax to pay. But they would be buying in the same market so they would end up in a significantly worse house with no profit. Is it really fair?

If you save, buy a house, do it it up, and trade your way through that cycle several times, paying tax on all the items, materials and contractors, and on all the income your earned to fund that work, why should you be taxed again when you retire/downsize because the Govt allowed crazy international speculation in the NZ domestic market pricing.....?

Wouldn't you have payed enough tax at that point (note -no look thru tax dance on any of this activity)?

Perhaps because the govt allowing crazy international speculation in the NZ domestic market has had a direct effect on the value of your home, and selling it without giving them a 'thank you' payment just wouldn't be right would it?

I can see land parcels being merged and 7 year old kids owning "family homes". Kim Dotcoms house is a family home right?

True, but its in an area of lifestyle blocks (large land holdings), and the Xmas hamper people would have paid a pretty penny to build it, all taxed. End of the day I'm OK with tax and pay a lot, just not keen on stacking tax on tax.

You make a salient point there, Bobster.

The review should have been set up much more prudently - including terms of reference (content), people and process.

Such reviews are very expensive and it's us taxpayers who foot the bill.

Really, it's not good enough.

TTP

As long as we move towards a situation where types of income, regardless of how they are derived, are taxed equally I'm quite happy for them to go ahead. Ideally I'd like the same taxation applied to both natural and non natural entities to even the field right up but I'm willing to accept this is very unlikely to happen at the moment.

Winston Churchill supposedly said

"The best argument against democracy is a five-minute conversation with the average voter."

Some of the comments here (and on Stuff) make me tend to agree with this observation.

Toys, cot, out.

Want to improve the fairness of the tax system, look at ways of increasing the point where you have to pay tax, I.e. The Tax free level of income. This maintains and enhances the current progressive tax system. We already have a inflation adjusted property tax that is not based on any consumption of services but on the capital value of your property, it's called rates. Speculators already have to pay tax on their gains, the bright line test. Extend this out to five years and speculative problem solved.

The brief demonstrates the abysmal lack of understanding of our current tax system.

The company tax rate is largely irrelevant to domestic investors - typically small business owners - under an imputation regime so lowering small company tax rates will basically have no effect whatsoever.

A fair taxation system should tax gains and income earned. So in my view CGT is OK. We don’t need taxes where gains or earnings don’t exist. E.g. land taxes and stamp duty. There’s no fair basis to tax, they create complexity, encourage avoidance, stifle growth and add risk to small businesses in particular.

I'm all for tax working groups that involve appropriate experts, but this one is so constrained it's farcical (as opposed to previous working groups that were so completely disregarded by the Government they were also farcical). You can't have a fair land/capital gains tax if you put in some cockamamie exemption around the 'family home' (whatever that means), for exactly the same reason you don't exempt 'fresh fruit and vegetables' from GST (heaven forbid). The cornerstone of good taxation is BROAD-BASED SIMPLICITY. Why oh why can we not just do things once, and do them properly!

"Why oh why can we not just do things once, and do them properly!" Why? Because it is too easy for the party or parties in opposition to frighten the bulk of voters. Look at how well the cries of Taxinda worked on so many of the ill informed masses.