The Government's Tax Working Group looks unlikely to recommend a corporate tax cut but suggests it might be time to look at a new environmental tax

A reduction in corporate tax appears to be an unlikely recommendation for the Tax Working Group but a capital gains tax, as expected, remains firmly on the table.

Some sort of new environmental tax may too be endorsed by the group, Chaired by Michael Cullen.

Speaking to the New Zealand International Fiscal Association last week, the former Finance Minister outlined details of a background paper the group is finalising.

The document, The Future of Tax: Submissions Background Paper, will be released on March 14 and aims to help people with submissions, which are due by the end of April.

In his speech, Cullen suggested it was unlikely that a reduction in corporate tax will be recommended by the working group, but strongly hinted environmental taxes would be examined in detail.

Although New Zealand’s 28% company tax rate is slightly above the OECD average, New Zealand and Australia are the only two countries with full imputation systems, he says.

“Empirical evidence for a connection between company tax rates and economic performance remains very weak.

“The kind of investment we need is likely to be based on far wider considerations than just minor differences in the headline company tax rate.”

He said calls to align New Zealand’s corporate and top personal tax rate would create “a race to the bottom in terms of revenue.”

In June last year, the OECD’s Economic Survey of New Zealand suggested the Government should consider changes to corporate tax settings.

“Because corporate taxes have both a domestic aspect to them, with small businesses, as well as an international aspect – for example attracting foreign direct investment – a broad-based analysis of the taxes in total of the New Zealand economy is warranted as part of an overall picture of how to improve the economy,” the report said.

Capital gains, wealth and an environmental tax on the table 

The Coalition Government tasked the working group with “examin[ing] further improvements in the structure, fairness and balance of the [tax] system” after it was elected last year.

It was given a wide scope but was told no changes could be made to inheritance tax, increasing income tax or GST rates. A capital gains tax that would apply to the family home, or the land under it, is also off the table.

But a broader capital gains tax not including the family home has not been ruled out.

Cullen says New Zealand has a narrow range of taxes by international standards, the most obvious example of this is the very limited scope of the current capital gains tax regime.

“That reflects a long New Zealand tradition, the basis of which is hard to discern.”

Other taxing initiatives which will be considered include a wealth tax, a tax on financial transactions, a land tax and environmental taxes.

On the latter point, he argues the effects of global warming are “already with us,” and New Zealand faces environmental challenges such as water pollution, plastic pollution and congestion, especially in Auckland.

“All this means that the possible use of the system to change people’s behaviour in ways which increase the wellbeing of all of us is very much on the agenda at the present time. I have no doubt there will be a significant number of submissions in that respect.”

The working group will present an interim report to the Minister of Finance and the Minister of Revenue in September – “this is a very tight timetable.”

“We anticipate there will be further public, political, and professional feedback on that interim report which will feed into the final report due by the end of February 2019.”

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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130 Comments

While reducing the corporate tax rate has become a bit of a mantra around the world - what is often forgotten is that with our rather unique imputation system - the company tax rate for domestic NZ resident investors - and this covers most small and medium sized business - is totally irrelevant.

Perhaps someone with more detailed knowledge could comment further on this issue,

yes, i would also appreciate more of an explanation re imputation

..I guess the point being if a company doesn't pay enough tax, then it doesn't have the ability to apply imputation credits to dividends - in effect passing the tax onto the shareholders instead. Thus low coy rate would help overseas investors (as they cant use ic), but not locals.

Yes, Bill English said it would help overseas owners mainly. Previously I thought it a most excellent idea, but Bill actually understands the all important details, unlike myself. I think for a small business your company profits or losses are partly transferrable to your personal income tax. So a smaller firm is effectively taxed at the owner's marginal tax rate. By and large this is a good system. The fact that some will attempt to rort it is like argueing that speed limits should be lowered to make people who ignore them slow down.

It's easier to think of NZ company tax as a withholding tax. (Many small closely held companies just allocate the profit each year directly to shareholders via non PAYE salaries on the company tax return. The recipients are then liable for the income tax) Where companies pay income tax the retained after tax profits will eventually be paid as dividends to the owners. That is when the NZ owners get credit for the company tax paid - the 'imputation credits' and Dividend withholding tax (which the company pays to IRD on paying the dividend) This should total 33% - the top tax rate.

Bobster.The imputation process allows shareholders to deduct tax already paid by the corporate on its earnings, from the tax the shareholder would otherwise be liable for in respect of dividends. The corporate calculates the amount of tax credit available for each share and issues an imputation tax credit certificate for the appropriate amount to each shareholder.

If not for imputation, tax would be paid twice on earnings dividends. It's only applicable for NZ shares; there's no imputation available to NZ taxpayers for Aussie or other offshore shareholdings.

Gone are the days when company tax rates were above 40% and high personal tax rates up to 66% and no imputation credits under Muldoon pre 84. Even imp cred wasn't introduced until Richardson around 1992

A additional tax in motor vehicle imports running at an unfettered 300,000 + pa would be a good place to start in reducing congestion on Auckland roads.

multi national companies in NZ pay very little or no tax, so rather than worry about the rate do away with the mechanisms that allow them to shift the profits offshore

Can that be done? Why would a multi-national want to invest here if they can't take their profits out? Shouldn't we just make sure those profits are taxed properly?

Hard to do when they can just use transfer pricing to magic profits out of existence.

That said, there might be merit to reducing company income taxes significantly. Estimates seem to put the amount of company income tax that is born by the individual employees as around 75% of the tax anyway, so reducing company income taxes (and GST) while instead putting some on other things such as land would actually significantly incentivise business and increase consumption, while disincentivising non-productive speculation in property. (This obviously subject to the above discussion re NZ's imputation methods.)

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Politically speaking it is difficult to not feel that the agenda for this little task force was set long ago and so too the recommendations and therefore outcome. An opportunity for the denied fourth term Clark/Cullen government to have another go?

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Out of one side of Cullens mouth comes the neo Clark socialist agenda (wealth should by its inherent nature be subject to state expropriation), while out of the other lip service is paid to the fiction that public submissions will change his pre determined outcome.

It isn't about wealth confiscation as such, it is about Control. Those Who Know Best suffer from the dangerous delusion that they should be in charge. "In charge of what?", you may ask. The answer to the question is "In charge of You". You are considered their property. It's all wrapped up in suitable intellectual obfuscation of course.

AEP puts our cultural history on the subject rather well:
Britain is a signatory to the (non-EU) European Convention on Human Rights. Thankfully, it will remain a signatory after Brexit. This enlightened liberal document was drafted by British lawyers after the Second World War with the explicit purpose of safeguarding pluralism and countering the totalitarian twins of Fascism and Communism.

One of its core principles is that you cannot use a catch-all “general interest” argument to curtail rights and freedom, as Hitler did in the Enabling Act of 1933 to remedy the “distress of people and Reich”.

The Spanish government resorted to “general interest” doctrine to imprison a radical Basque journalist in the Eighties. The case went to the (non-EU) European Court of Human Rights. It ruled against the Spanish state. The jurisprudence is clear.

So imagine the horror when the drafters of the EU Charter – reporting to French Gaulliste Valery Giscard d’Estaing – produced a text asserting that the EU has the authority to circumscribe all rights and freedoms. The wording was slightly modified on British insistence (after The Daily Telegraph drew attention to it) but the central thrust remains, even if camouflaged by inverted obfuscation.

Article 52 now reads: “Any limitation on the exercise of the rights and freedoms recognised by this Charter must be provided for by law and respect the essence of those rights and freedoms. Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others.”

For EU members, it is the European Court of Justice (ECJ) that decides what are “necessary and genuinely meet objectives of general interest”. There is no right of appeal. In short, the Charter is an authoritarian document in disguise.

There is a fascinating twist to this. The ECJ issued a thunderclap ruling in 2015 that effectively blocked EU accession to the rival ECHR. It was not going to let six decades of European rights law constrain it in any way. The judgment set off an outpouring of ferocious criticism from jurists and law professors across Europe.

Prof Steven Peers from Essex University said the ECJ itself had become “a clear and present danger to human rights protection”. The ruling was flawed in legal terms and pernicious in its intent. “For those of us who support human rights protection, today’s judgment is an unmitigated disaster,” he wrote at the time.

Furthermore, there is already evidence that the Charter has prevented member states from setting higher standards. In the Melloni ruling in 2013 it ordered Spain to disregard a provision in its constitution preventing trials in absentia.

We can have a legitimate argument over the competing philosophies of the Charter, with its Christmas Tree of utopian economic and social rights (created rights) on the one side, and the evolved workaday British liberties enshrined in the Magna Carta and the Bill of Rights on the other. It is a clash between what is declaratory – promiscuous “rights inflation”, one might say – against what has been tested and moulded by centuries. But Amnesty goes a step further with its attack on Brexit, and I am not convinced that it puts much effort into holding the EU power structure to account.

As The Daily Telegraph's Brussels correspondent long ago I covered three free speech cases at the ECJ – Connolly, Andreasen, and Tillack – and in each case the ECJ rubber-stamped abuses. It served as the enforcer of executive power.

Amnesty did not take up these cases and to my knowledge it has been largely silent on misconduct by the EU institutions. I had this problem with Amnesty covering Nicaragua in the Eighties when it detailed human rights abuses by the Contras (which were true), but pooh-poohed reports of mass killings by the Sandinistas (which were not hard to discover if you visited villages by foot and talked to campesinos). These killings were later verified when the Sandinistas lost power. I took part in a gruesome exhumation of bodies at one site where 63 people had been killed by state security forces.

The detail of one of these ECJ cases is telling. My friend Hans-Martin Tillack – a German investigative journalist – was arrested by Belgian police at the behest of the Commission on false charges and held incommunicado for ten hours. They seized his computers, address books, telephone records and 1,000 pages of notes, compromising all his sources.

The International Federation of Journalists called it a "flagrant violation" of press protection, warning that it made it "virtually impossible" to carry out investigative reporting in Brussels. The ECJ ruled against Mr Tillack when he sought redress. It said the Commission had done nothing wrong.

The case is revealing because there is an exact parallel in British history. In the Entick v Carrington judgment of 1765 the courts ruled that the seizure of papers from the house of a publisher – and his detention for four hours – was an exercise in "arbitrary power" and a breach of the Magna Carta. This Wilkes case was the foundation of British free speech.

Let us not be sentimental about the Magna Carta and its successor documents, but let us lose not confidence in the founding texts of our liberty either. It arguable that they do job better over time than the Hegelian abstractions of the Continent.

The striking feature of Langton’s ultimatum to King John at Runnymede is how so much of it draws on ancient Saxon and Celtic notions of freedom, and how clearly it is intended to check overweening monarchical power. "All men in our Kingdom have and hold the aforesaid liberties and rights, well and in peace, freely and quietly, fully and wholly, for ever.

"No free man shall be taken or imprisoned, or outlawed, or exiled, or in any way destroyed, unless by lawful judgment of his peers.

"No constable or bailiff shall take another man’s corn or chattels without immediate payment, nor take any horses or any man’s timber for castles.

"Any one may leave the Kingdom and return at will, unless in time of war, when he may be restrained for some short space for the common good.

"The City of London shall have all its ancient liberties and free customs." Merchants should be free from "evil tolls".

If our courts can uphold these principles, our rights are safe.

https://www.telegraph.co.uk/business/2018/02/23/amnesty-has-strayed-badl...

Tks Roger, fascinating. There is in all of that of course quite a rationale for Brexit. Think by the end of it the NZ electorate had had more than enough of the “ I say you do” rule of the Clark/Cullen government. If that lot are now coming out from behind the curtains, then we are not going to get the fresh modern government that the electorate thought it was voting for, quite the opposite. Heck even the above photo reveals how much more sour and dour things have got from having to be nine years out of power.

AEP is just the best journalist in the world, he brings an understanding of constitutional law, culture, history and business together. Who else can do that?

Well A A Gill was I think equal in prowess, but completely different vein & subject matter of course. Yes you are right, sad thing is though, the incisive, analytical journalist is a dying breed. Everything has become so bloody partisan.

Yes you could be right Roger. We'd seen this game before. Tax the rich, then pass that money back to others in ways that makes them beneficiaries, under brand name Labour programs like working for families...a system of control. Thought we'd voted this out, but it returns again

Yes, it is rather fascinating. I too was socialist in my younger days, and still sometimes fall for the seductive images they paint in our minds. Always the wonderful future but never the real cost. I guess each generation has to see the results for themselves and realise that life is a lot more complex than we are led to believe.

I was your standard conservative voter. In more recent years I've become more interested in cycles of history (including NZ's economic and social history), policies that work etc. than one side or the other.

And I'm realistic that both NZ's main parties are two very slightly different flavours of socialism, sometimes with different recipients, and that even our nominally conservative voters enjoy the benefits of that socialism as much as anyone else.

My issue with the left is their propensity to see an increase of the role of the State as the solution to everything. It’s even worse than usual right now as those decisions are being made behind the scenes by unelected party has-beens i.e. H1, H2 and Cullen then fronted by an accidental PM who would be more at home managing a Primary School than a Country.

Out of interest, what would be some examples of this nefarious leftist behaviour of seeing the state as the solution to everything?

That’s true for a lot of us. Recall for, want of a better example, the old cliche, that Rob Muldoon was the best socialist PM that Labour never had. But the latest National Government under Key differed somewhat in my opinion in that they sought to grow NZ economically through encouraging the big corporate model and behaviour. Another cliche, is the trickle down to the lower ranks of society for all of our benefit that we were to thus receive. Trouble is corporate greed and self interest can grow like mushrooms given the chance and produce hugely counter productive results. Fletchers for example?

In simplified terms - If I don't have my Rights then someone else does.......in the case of taxation, Jacinda as both PM and leader of the Labour party has the biggest stake in people's rights.......so all one has to do is send her a personal invoice for all taxes, fees, duties, levies etc that her government insists upon ........MP's are meant to protect at all costs Magna Carta, Habeas Corpus, 1688 Bill of Rights etc.......it is the MP's who break the social contract with individuals by stealing the rights for themselves.......so they should all receive personal bills.

Thanks for sharing the article by the way....

Of course removing the need for some taxation by getting rid of "Working for Families" and accommodation supplements is not up for discussion.
It would drop property prices, make housing more affordable and redirect investment to more productive areas.
The group is resolutely focused on increasing all forms of taxation, and inventing new taxes.
There is a sop to the environment, but nobody has yet shown that it is remotely possible to reduce total CO2 emissions and pollution by increasing population by 100,000 pa.Nothing about population control.
The suggestion that a punitive tax on new houses, to limit population and pollution growth would naturally not be on the table. Twyford might object.
Ways to increase the tax base by increasing employment, skills and productivity in an environmentally friendly way are way beyond this band of paper shufflers called a tax working group.

Absolutely agree that this Working Group should be focused on "growing the pie" and supporting environmental sustainability rather than trimming things around the edges.

As a GenX "middle class" taxpayer who is cash-comfortable but relatively asset poor I expect this Working Group to safeguard the interests of working people and professional people alike who are subject to PAYE tax structures.

Frankly I couldn't care less about realigning corporate taxes (code for lower taxes) and anyone with half a brain can see that this group has paid proportionally less & less in taxes since WWII. It's no coincidence that when America was "great" their company taxes and inheritance taxes were much much higher than they are today, and I believe a similar story could be told about NZ society.

Gareth Morgan got some traction with the question of tax reform and it is right and proper that this government asks the question - "are our current tax arrangements going to serve us well in the 21st century?" Clearly any tax system centered on taxable income is too limited and ignores the issue of taxable wealth. We must explore CGT, Tobin taxes (financial transaction tax) and consumption taxes because I'll be damned if I'm going to shoulder the burden for those both poorer and wealthier than me until my dying days *and* pay for my own healthcare & superannuation.

And to those who cry and moan about this group even asking such intelligent questions, I say "boo hoo!"

Larry. Given 40% of Kiwis (effectively) pay no income tax and an effective rate in the low 20% range for those who do, your statement that corporates are not paying their share doesn't stand up to examination.

'Capital taxes don't collect a lot of tax, are very complex and costly to administer with the cost benefit analysis marginal' - Deloitte tax expert, Bruce Wallace.

He is talking about capital gain taxes ,not asset tax.

If the "gains" are simply due to the inflation of the currency, what is the difference?

Agree with you Roger; over time there is no effective difference.

Andrewj. The great man has been reported as saying a 'wealth tax' as well as a 'broader capital gains tax', are both on the agenda.

Cullen opted for increasing wff up into the middle class (instead of tax cuts). It would be unlikely he would make a case for it's removal

And National were campaigning likewise last time on increasing it and other redistribution. Unfortunately it looks like we're stuck subsidising company wages and property investors.

Of course he is bearish on a company tax, he’s a socialist. It’s tax tax tax with his mates in control of our lives. What a clueless fool, as Churchill once said, ‘trying to tax your way to prosperity is like standing in a bucket and trying to lift it’.

Yep, look at all those miserable people in the Scandinavian countries begging at the road side, harassing cars at the traffic lights with their begging bowls.

Or tidying up the hand grenades carelessly littering the streets...it must be True, because NYT reported it!

A few friends of mine lived in Scandanavia for a year, they said it was rubbish. People are unfriendly, they are conditioned by the state to follow rules and conditioned to respond accordingly how great their lives are. They are a dull society with a real lack of freedom. No wonder so many people leave Scandanavian countries.

What freedoms did they lack?

They are socially conditioned to be servants of the state, that right there is oppressive and controlling. The government suppresses information and statistics like unemployment rates which they claim is at 2-3%. Former Swedish trade unionist Jan Edling said the actual number of unemployed is far higher, and those figures are being suppressed by both the government and the Swedish Trade Union Confederation. In Edling's report he added that a further 3% of Swedes were occupied in state-organised job schemes, not in the private sector. He also claimed a further 700,000 Swedes are either on long-term sick leave or in early retirement. Edling asks how many of these people are in fact unemployed. According to his report, the "actual unemployment" rate hovers near 20%.

They are socially conditioned to be servants of the state, that right there is oppressive and controlling.

Ah...It's also very vague, completely lacking in specificity. More an ideological claim than an example demonstrating a freedom they're lacking.

"A lot have jobs in the public sector" and "they have a work for the dole equivalent, ew" (irony?) aren't the greatest proxies for real examples of freedoms they're lacking.

Early retirement and social support in it? Well...Does that mean you will not be claiming a pension as that would trample your freedom?

This government is full of a bunch of idealists much like those Scandinavian governmental fools. They run the country not on proof or outcomes or experience or fact, but on theory, ideology, stuff you read in a book in a lecture theatre. They have no experience in the real world, only five of them have ever been in a Cabinet. From the Labour point of view, I can't think of any of them that have ever actually done anything in the private sector. Owned a business or actually employed people!

I agree with Cullen that reducing the corporate tax rate by a few points would not achieve much. A more bold move would be to reduce it to zero. Let's face it the international corporations aren't paying now and thy will always win this battle as they can employ the best and brightest to find ways around. The only corporations that pay tax in NZ are NZ based ones - which gives an unfair advantage to foreign companies. As voiced above we must find ways to tax wealth and not just income. But I suspect we will get a CGT that exempts the family home and no real substantive change.

NoFax. But you are in conflict with the good Doctor Sir Michaels seemingly incontrovertible pronouncement yesterday that "the evidence of a link between company tax and its performance is 'very weak' ".

I think Cullen is right if we move a few points but abolishing would be significant - but I haven't got the empirical evidence to back up my conclusions. Be interesting to see though!

It's pretty clear that utilising taxes with positive incentives like land tax and pigovian taxes are far better options than utilising taxes with negative incentives like GST and income tax. A shift in our tax system to incentivise economic efficiency, encourage less inequality and create positive social and environmental outcomes is long overdue.

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I don't think there is a tax that Cullen does not like.

@ The best status .............. yip , you're right , Cullen is likely to take his instructions straight from the Kremlin manual , even though the instructions will be 25 years old and discredited .

"A wealth tax, a tax on financial transactions, a broader capital gains tax, a land tax and new environmental taxes will all be options considered by Labour's Tax Working Group", its chairman Sir Michael Cullen says

boo - ho.
What does it matter what tax we use if the net tax take is unchanged and the tax burden is more fairly distributed?

Danger. Kool-aid alert. Politicians are experts on getting their way by appealling to our hopes and dreams.

I don't disagree.
You miss my point though.
It wasn't that we should blindly trust Cullen. It was that the things Yvil (Mike Hosking wannabe) is rambling about aren't necessarily at all bad if structured correctly.

Taxes are never structured correctly and never will be structured correctly. Taxes are about power......about taking someone's money and giving it to someone else.......taking taxes is about creating causes and selling it to the junkies......to get an uptick on a voting sheet.........

Well said, heaven forbid we pay teachers, police, doctors, nurses, fire fighters, ambulance staff, pay for roads, refuse collection, border security, pay for the elderly (pensioners being the largest social beneficiaries). What we really need is all that for free, they should all volunteer, it's a vocation after all, or once people pass retirement age they could be culled.

Oh dear, maybe celebrate that your gene pool made it to this point in time without all those public causes you list.

The real irony is that the vocations and causes you list, only ever cost the tax-base generators who end up also having to purchase most of those services again in the market.......You want the taxes for free and make everyone in private enterprise volunteer their time and resources into provisioning you with your social claims......Control at first is sneaky and comes via the backdoor but then it changes course into directly knocking down the front door and demanding.

How about standing up and recognising the people who are contributing to the economy via tax generation?
All over social media I see posts like support nurses they work hard, support teachers they work hard, more police needed, more money and resources for border control, everyone is screaming for more.....and yet no one ever says thank-you to private enterprise, no one ever says how is private enterprise going? can they afford this? Is private enterprise able to generate the spare capacity needed so we can spend this here and that there? Never a mention......it is a crude and sad world we live in when we can never acknowledge the party doing the paying but put those doing the taking up on a pedestal!

So those professions don't pay tax then? You could argue that we get a 25% discount on all of their services.... Those doing the taking? Like educating our children, keeping the streets safe/clean, looking after the elderly, infirm and sick...

For what it's worth I work in the private sector, am privately educated, have private health insurance, I also merrily pay my taxes/ACC and am happy that I fund a teacher every year through the 33% tax I pay on my income, I don't expect a pat on the back, nor do I think it's altruistic. It's called living in a society.

nymad, I wasn't rambling, I was purely quoting Cullen, copy & paste, word for word, not even adding a single word. If you don't like the post, complain to Cullen, it came straight out of his mouth

Surely koolaid leads one to believe that the current situation is the best it can be and income taxes are the best taxes there can be, rather than that taxes should be considered with their effects in mind and with a wider understanding of the history of tax. Heck, the USA didn't even have income tax until a fair way down the track.

Income taxes will be favoured by those who are rich in assets and wealth gains from those assets (especially when they can disguise those gains or those gains aren't counted as income), and people who have to work for a living will benefit from lower income taxes and a shift of some of the burden off them onto those who currently enjoy significant tax-free wealth gains.

RickStrauss. A belief that investors will , under a more aggressive tax regime, continue just the same as they always have and take the same risks with their capital as they previously did, is naive. Instead they will raise their portfolio risk thresholds, divert capital to more tax efficient investment vehicles and spend a great deal more of it than they would under simple tax systems, on avoidance.

Human nature will always seek to minimise the impact of excessively confiscatory tax regimes. The net gain in tax is never as much as politicians like Cullen grandly claim.

His FIF envy tax, for example, has driven a move from wealth building capital gain focussed stocks to those with higher dividend yields but lower capital gain. The net effect is lower wealth accumulation for Kiwi savers and higher levels of welfare dependency upon retirement.

And that's exactly why this discussion is taking place, obviously.

Because too much money has been encouraged into unproductive property rather than productive investment.

Because it's precisely that we don't want investors to continue the same unproductive investment they always have, but instead divert it into more tax-efficient investment vehicles and spend more of it rather than simply sitting it in houses. So - good reinforcement.

Drop company income taxes and raise land tax again as in the past and you'll incentivise productive investment and disincentivise unproductive investment. As you say, investors won't simply continue just the same as they always have.

".. raise land tax again as in the past .."

At all times such a tax existed in NZ it was highly graduated , with great majority of small landowners not paying it at all. The main reason land tax was eventually abolished had been the introduction and growth of local property rates - which were seen as duplicate land tax and a more apt replacement for it.

Currently floated proposals are for a nearly universal land tax ; they do not foresee abolition of local rates either. That makes those proposals nothing like the land tax that once existed in NZ ; to suggest otherwise is misleading.

Actually land tax in its earlier forms was used precisely to break up NZ's domestic and foreign land banks, thus it's part and parcel of how any homeowner today got to own a home. Sure, it was weakened then eliminated over time (perhaps because it had succeeded in its intent...which is now again being undone). Current proposals also suggest dropping income taxes to make the change neutral.

RickStrauss. The belief that tax efficiency will deliver investment decision optimisation, is incorrect. It may work in diverting some capital from housing but when tax becomes a primary driver of corporate investment decisions, you have compromised the vision and priorities for your business and it will suffer accordingly. One of the joys on NZ's current and relatively simple tax environment is that tax efficiency is a comparatively minor consideration. I spend some time with Aussie business owners and corporate types and am intrigued by the huge amount of time and effort they spend on avoiding CGT. It's all non productive deadweight activity; almost an obsession.

This is all a bit fluffy ("compromised the vision"), rather than cause and effect. Lower company income taxes and higher land taxes would of course encourage investment of money into more productive investments and out land banking - as has been used in the past to break up NZ's land banks. Money seeks a return.

Bit tricky comparing a different tax and its effect in AU to a broad based tax discussed here.

Rather than introduce new land taxes why not just increase rates to a sensible level, fix the infrastructure to support the current population and get rid of immigration to limit expansion.
Would provide employment, control property prices and be good for the environment.Growth is not environmentally sustainable.

It is true that income tax is something introduced relatively recently in historical terms.
Not coincidentally state - funded social welfare is something is just as recent .
Those who want to abolish or reduce income tax and replace it with other taxes "as they used to be in good old times " should also argue for reduction or complete removal of welfare.

Surely we can be a bit more analytical than "Oh back in those times they also had non-flushing toilets so if we bring back land tax we should do away with flushing toilets too, just because".

Surely you understand that the relationship between tax ( including income tax ) and provision of social welfare is just a bit stronger than that between tax and flushing toilets ?
Or is it a just bit too hard ?

It makes a lot of difference. You ignore the economic efficiency drag effect that complex taxes create. Investment patterns are distorted, job creating entrepreneurial low success rate/high capital gain potential investments are discouraged in favour of yield biased enterprises and where specific classes are exempted such as the 'family' home and inheritance tax, perverse outcomes in capital allocation are inevitable.

Not at all do I ignore that.
That is exactly why we need tax review. Our tax system (apart from GST) is a hodge-podge of exercises in stupidity and futility.
I don't at all advocate for an idiosyncratic tax system. I was merely pointing out that before we balk at buzz words, we consider that they might actually consider their merit.

Exactly. Tax is one of life’s most important things to some people. I couldn’t care less about it as long as my peaceful, clean country and society that all these gimps take for granted is not affected as it has been over the last decade.

"Tax is one of life’s most important things to some people"

Yes these people are called "beneficiaries"

..yes, those who use roads, hospitals, police, military, national parks, health services, national super...and of course landlords.

Not to mention the beneficiaries on the pension, those taking up over 50% of NZ's social welfare budget.

dp

"A wealth tax, a tax on financial transactions, a broader capital gains tax, a land tax and new environmental taxes will all be options considered by Labour's Tax Working Group", its chairman Sir Michael Cullen says.
.
Where is the incentive to take a risk, start a company, grow it, employ staff, put aside after-tax paid money for one's future nest egg when you know you will be taxed a second time on your assets?
It seems much easier to live day-to-day, care-free, spend all you have, not care about your future (because someone else will pay for it)

Where is the incentive to take a risk, start a company, grow it, employ staff, put aside after-tax paid money for one's future nest egg when you know you will be taxed a second time on your assets?

So you finally reveal yourself as Mike Hosking.
How is this precluded by an efficient tax policy?
If anything our current system is the biggest impediment to these things you mention - "Where is the incentive to take a risk, start a company, grow it, employ staff".

You can call me Mike Hoskins if you like

A capital gains tax will only tax the gains on your assets, so you won't be taxed again on the core value of your assets. Yes all those other taxes would be a second tax, but I doubt any will be recommended.
How about the guy who spends most of his life flipping properties for millions in capital gains and never paying any tax. Why should that guy get NZ super, free health care, etc.

In your view is that hypothetical person ( who IS paying GST by the way ..) less deserving of NZ super etc. than a life-long beneficiary who never bothered to lift a finger in his life ?

Definitely - one is rich the other is broke. I doubt being on the dole is as glamorous as you assume.
I pay tax on all of my income and I expect others to do the same.

Where did I say being on the dole is glamorous ? - you are making this up- I do not believe that at all BTW.
" One is rich , the other one broke" - just your assumption .

I too pay tax on all my income. Capital gains ( unfortunately I have little of that .. ) are not income - it is a basic but key distinction.

In my opinion capital gains is very similar to interest on a bank deposit - which we do pay tax on.
It is currently a basic but key distinction - but it doesn't need to be...

You are ill-informed Jimbo Jones, anyone "flipping properties" for a profit pays tax and has been doing so for years

I believe the future will see asset taxes, I don't see any other option. Just takes time until someone has the balls to do something just and proper.

Just because you "believe" it does not make it so - thankfully . I do hope you are not holding your breath.

It will be driven by inequality, just have a look around

yep. And as the asset class accumulates more, they become a lesser and lesser % of voters. Hence the open season that is about to start on landlords. If it's what the majority vote for...

I do look around - but I do not see what you see.

Inequality is not actually increasing in NZ as measured by Gini coefficient .( http://archive.stats.govt.nz/browse_for_stats/snapshots-of-nz/nz-social-...)

Plenty of countries in the world where it is increasing ( USA being an obvious example ) . That has not led to introduction of asset taxes which you believe are inevitable. You are hoping against hope.

Cullen’s the same guy who called John Key a “scumbag” and a “rich pr**k” and introduced a 39% tax rate for income over $70k so not surprising he’s talking about a wealth tax.

Sounds like Cullen judged JK well..

Sorry when did Cullen that’s Sir to you, ever say that? JK raised GST to 15% adding to an already exorbitant cost of living in NZ. Why are people so worried about beneficiaries when it’s pensioners that make up the biggest social expense by far

I think it’s because pensioners through a lifetime contributing to the country and paying taxes have earned the right to a weekly payment whereas those on the unemployment benefit are merely a drain on society.

That Pension is something people are entitled to is an assumption like any other. It's also an incredibly socialist assumption, and is the majority of NZ's social welfare budget.

I'd agree we should have a welfare system that helps those in need get back on their feet.

Welfare dependence is also a bad thing (although again, we have an assumption that it's not a bad thing when you're over 65).

With the Pension, we also do not pre-fund it (save the Cullen fund...ironically from Labour). We fund it out of young folks taxes as part of a balancing act of benefits to the young and to the old. It's the cutting of benefits to the young (e.g. education) while not to the old, in the name of tax cuts for those who have already received, that sometimes gets rather incongruous.

The Cullen fund partly prefunds Super, but will not be used till 2036, when those who have paid most of the taxes for the fund will not need it.

Everyone gets old. Rich or poor. Some here speak of beneficiaries as deadbeats. There are just as many deadbeat pensioners as there are the “deserving old”. The reason we pay universal pensions is one of human decency. No one wants to see old people living on the street (expecially not THEIR street). I am completely fine with funding universal pension payments, but I don’t pretend that all old people “deserve it” . It’s a bit rich for those who get a universal pension to begrudge those earlier in life who receive benefit payments and who are no less “deserving” than them. We pay welfare payments to beneficiaries because we don’t want people like that to be living on the street, and particularly because we want to improve the life chances of kids in those families.

Shame on people like you and Eco Bird who casually talk about beneficiaries like they are dirt. They are no less deserving than people who are paid the universal pension. They are paid for the same reason.

It was publicised at the time try reading here Tui12. Scumbag and Rich prick are the words Cullen used!

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10480684

No he could never change his spots, just grow more. He did let out some pretty guttersnipe utterances, for one of such lofty intellect. For Instance Winston the blowfly & poor old Merv Wellington, a lobotomised Jerry Lewis. This to me looks like the first very big wrong step by this government. Loading up the bases to rubber stamp a hidden agenda. If this government heads back into the control freak mentality of the previous Labour government, they will be one term full stop.

Can't go past progressive income tax, gst and property rates for simple, effective taxes. They just need tweaking, ie zero rate for $15,000 and under, higher marginal rates to offset that, and abolishing gst on essential food items, and tweaking that on luxury items to compensate. Central govt should wrench property rates back from our wretched councils, allocate them back more efficiently and use amsurplus as a de facto wealth tax, allowing for regional variations in prices through a median mechanism. Elderly people would be able to offset what they can't afford against their estate. So there you have a workable de facto wealth tax, capital gains tax and inheritance tax all in one.

Ah, GST, I hardly knew ye....

Futzing about with differential GST rates foobars what is internationally recognised as one of the best ad-valorem taxes in existence on the planet.

Once differentiation has commenced, the political arguments about stuffing up a nice simple tax, go out the window. The technical term is Defenestration. So every new Bright Idea has a much better chance of being incorporated (because 'It's Good for the Children/Environment/Winnie/our little business segment/our Region/our political cronies/the unions/beneficiaries/the Grey Vote...it's an infinite list). Do y'all really wanna open That up for grabs? It's a direct path to cronyism and to a tax guide the size of several phone books, updated quarterly, available for purchase for a Modest Fee.

There are two aphorisms worth recording about Tax in general.
- it's like plucking a goose. You want the most Feathers with the least Hissing.
- a high degree of Inequity is preferable to a small degree of Uncertainty.

The short version: don't foobar GST by opening the Pandora's Box of differential rates.....

But hey, don't let the Precautionary Principle stand in yer way - Let's Do This!

Cullen/Clark suffered "Defenestration" but are now cynically exhumed.Complete with rubber stamps.

Not just exhumed, resuscitated and hands firmly back on the levers off power due to the seriously shallow coalition talent pool.

And deified!

It was, I think, fairly obvious before the election that Clark was poised and positioned in the room next door, to take up a behind the scenes role. Agony Aunt would be a good title, one would suggest.

I will be gutted if Labour start messing with our simple GST system which is the envy of the tax world. Keep it comprehensive. It was never intended as a tax on luxuries as some people think now. It was intended to be on nearly everything to keep it fair and easy to comply with. It brings in good revenue and is transparent. Do you want to go the way of Britain and have court cases around what constitutes a cake or a biscuit? Anyway say GST was removed off fresh produce, who would be able to tell after a couple of months? Produce is priced on what the market will bear and you can be sure that any price reductions would be short lived, and the various suppliers and supermarkets would just increase margins.

What about having an envy tax?
No we couldn’t have that because most of you would have to pay it!

Perfect! I'm annoyed I didn't come up with that one.

So easy to administer! Instead of me paying the IRD they would pay me!

Personally I would like to see a reduction in consumption taxes, like GST, that disproportionately affect the poor and a rise in taxes on unproductive capital allocation like property speculation.

RP, think that would be a great idea, but they will never reduce GST as it brings in so much money.
There are already taxes in place for so called property speculation.

Yes, agree THE MAN 2 they are targeting some speculation on property now. There are many more unproductive ways to allocate capital (i.e. nothing is produced for NZ); in property on empty houses long-term, land bankers on city fringes, in equities high frequency trading, bitcoin etc...

Tax should be simple so its easy to administer and collect (sorry lawyers and Accountants). GST is simple, Property Rates are simple, and a Poll tax. Dare I say it Morgans tax on capital has the makings of a simple tax.

End of the day I suspect they will attack investment property (not family home) capital appreciation from the last 10 years, as this is clearly the fattest target and the largest cause of social inequity within NZ. Watch this space.

CGTs usually require a start date for asset valuations after the tax is introduced. Australia took 15 years to start making serious revenue off CGT for that reason. If it is introduced here it could take many years to become a good earner for the government. It is also the type of tax that is lumpy in collection. But in good years the government will lift its spending, and then find it difficult to maintain those spending promises, during the poor years of CGT collection. CGT is complex and accountants and lawyers will be the main winners.

fmr ca. Yes, lead in times are long as CGT start dates cannot be backdated. Don't agree with your 'good earner' prediction though. Tax experts tell us that CG taxes 'don't collect a lot of tax' and if you do a cost benefit analysis that factors in the collection drag effect (including avoidance activity), the net gain is negligible. Not that the ideologue Cullen will take much notice of what genuinely independent experts say.

I for one will be very interested to see their output re a financial transaction tax. I asked some weeks back if anyone had done the exercise for NZ to see what it would produce, especially if it replaced in total, the current taxation system. i got no answer, so this should be interesting.

I thought the last Taxation Working Group Thingy said that interest received should be taxed less, as it was mainly recompense for inflation. So, get 2% less 2% inflation, real return 0%, but it is taxed as if it is 2%. There is an obvious distortion that takes money unfairly from people who lend money to the bank (less sophisticated savers, ie ordinary people). Funny Chairman Cullen doesn't mention the obvious unfairness to depositors. Presumably he just thinks they are "rich pricks", and thus undeserving by definition.

...he argues the effects of global warming are “already with us,” - do we get a refund if global warming goes into reverse? "Southern Hemisphere: +0.06 C above 30-year average for January."

Nice work when you can tax the plebs on a naturally occurring phenomena.

https://www.nsstc.uah.edu/climate/2018/jan2018/jan2018GTR.pdf

There is this assumption in NZ that because you’re 65 you deserve a pension and beneficiaries do not deserve anything. I’ll give you an example of my parents. My father is 67 has decided to keep working so earns well over 200k a year, has multiple rental properties and collects the pension my mother has never worked a full time job in her life and has just started receiving one also. The pension was brought in traditionally for those that were no longer able to work through age. It’s designed to provide for the bare basics of getting by. There are hundreds of thousands like my parents who are abusing this system, it’s a complete rort. It needs to be means tested like it is in Australia ASAP to stop this carry on as they are the real beneficiaries

I disagree. if you have been working paying tax then part of that money you have paid should allow you to receive something at 65. If you have been living and working overseas (like Aussie) and never paid any tax in NZ then I agree, you should get nothing in NZ.

Except the tax money you pay today does not go towards your future pension, hell it does not even cover todays expenses, and you still get it even if you never worked a day in your life.

No desire to opine about other family circumstances which are none of my business, but you introduced this is your example to this forum.Your father worked hard, supported no doubt by your mother. Obviously as a team they are successful. That has to have been, in broad terms, a contribution to our nation and society and that is carrying on. So why are they then undeserving of what each and every underachiever, would get?

Any tax driven by resentment is likely to be divisive and further widen the wealth gap .

And for anyone who honestly believes that a new tax will somehow make homes more affordable should get off whatever they are smoking and come back down to earth .

Tax the suppliers of housing rental stock and who the hell is going to supply houses to rent ?

Housing New Zealand ?

Get real , right now those clowns could not house a Tui in a Pohutakawa tree even if they tried .

The Government would do well to encourage the private sector and the free market to take the risks of providing rental stock.

This would mean making land available and removing onerous conditions that inhibit land development

I for example will simply gift my single commercial property to a Trust in perpetuity for my children and their children and thereby never be burdened with this lefty resentment tax .

Even then, it'll one sold one day, sooner or later, and Cullen's henchmen will get your money in the end. Spend it all, then become a beneficiary.

Investing for the future in a socialist utopia, is a mugs game.

A new tax won’t make houses more affordable but it will appease the envious.

Don Brash is likely wealthier than you, yet even he thinks NZ should be looking at a CGT. Why would you think he's envying you?

That said - agree we need to free the market up. Free up land zoning, allow intensification, stop subsidising company wages and property investors' rents. We have a bizarre combination at the moment of subsidising property investors then not taxing their profits.

Yea.
Super weird how all these wealthy economists come out and say that we need to review our tax policy.

Stuff listening to them, though. What would they know.
It's probably much better that we all prescribe to the Hosking school of economics.

Good to see you're coming to your senses

Well recall for a long time, admittedly a long time ago, Mr Brash advocated strongly against even owning your own home in the sense of it being an investment, and to endorse that, at that time he did not own his own home. That theory obviously subsequently was recanted. So guess these super wealthy economists, just like all of us, can get themselves cross legged without too much difficulty.

What your saying is common sense but Govts don’t work that way.

Slogans and knee jerk reactions get votes not vision or strategy.

.

From my own reading/thinking, my view is that much of the growing wealth inequality we see today, is largely a consequence of the nature of our ever expanding fiat, monetary system.
The most obvious manifestation of this monetary inflation induced inequality , today, is in house prices/ affordability.. ( and if monetary inflation wasn't bad enuf, all that money supply growth is the form of debt , and the interest we, in aggregate, pay on that debt, which is like skimming the cream off the milk ).

My view is that if they take a "band aid" solution to the issue, by simply taxing wealth , without addressing the underlying causes, we will end up with unintended consequences, one of them being a struggling "middle class". ( which has happened in USA )

I'm into solutions based on first principles... for me, this goes right back to the nature of our debt based monetary system , which defines our current form of capitalism , and which I call "debt Capitalism".
Monetary inflation is inherently a wealth transfer mechanism. Without addressing this, .... we don't really solve anything.. Taxation is never really a solution... it is simply the means by which the Govt. gets money to fulfill its functions. When used as a heavy hammer to simply redistribute, many unintended consequences can arise.

Maybe part of this tax committee should be in asking what size should govt do we want..?? Is the optimum size 30% of GDP..?? 40%..?

In a globalized world, what is the point of NZ having an environment tax unless we charge that tax on imported goods from our FTA partners.??? It simply adds to an uneven playing field.

Why does the tax working group solely focus on adding/increasing taxes ? I think the mandate was to rebalance the tax system, not increase it's tax take.