Terry Baucher on rising tax rates, the taxation of capital, environmental taxes, a rising corporate tax take & increasing power and reach of tax authorities

Terry Baucher on rising tax rates, the taxation of capital, environmental taxes, a rising corporate tax take & increasing power and reach of tax authorities
When a post COVID-19 world dawns, there'll be plenty of options for new taxes. Photo: Terry Baucher.

This week’s Top 5 comes from Terry Baucher, director of tax advisory business Baucher Consulting.  

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

And if you're interested in contributing the occasional Top 5 yourself, contact gareth.vaughan@interest.co.nz.

“There are decades when nothing happens and there are weeks when decades happen” Lenin is said to have remarked possibly sometime in 1918 during the early stages of the Russian Revolution.  

And certainly, there were days, let alone weeks, last month when decades seemed to happen.  We still don’t know the full extent of the economic damage the COVID-19 pandemic has inflicted, but there is no doubt it will have a massive impact for years, if not decades to come.  

This Top Five looks at the possible short-term and longer-term impacts on the tax system as a result of coronavirus. 

1) In the short-term tax rates will rise. 

The initial shock to government balance sheets is enormous. To compound the problem, many governments are still recovering from the effect of the Global Financial Crisis in 2008. Here in New Zealand, the Government's books were in good order coming into this crisis. But with projections of a potential doubling of net government debt in a matter of months the Government’s finances will undoubtedly come under strain. 

In case you missed it, not only will there be a huge hole in the government's books as a result of this pandemic, but the inexorably rising cost of New Zealand superannuation remains. As is the not so small matter of responding to climate change. Remember, it was barely three months ago that smoke from Australia was affecting our atmosphere here. 

The tax system was going to have to change to adapt to those two issues, and those changes will accelerate in the wake of the COVID-19 pandemic. The first sign of how those issues will be addressed will be in next month’s Budget. 

My guess is that next month’s Budget was going to include an adjustment of the tax thresholds probably targeted, as the Tax Working Group recommended, at low to middle income earners. I think that will still happen because putting money in people's pockets in a recession would be a reasonable measure at this stage. It will, however, be the last such adjustment for quite some time. 

Medium-term, maybe within a couple of years, personal income tax rates are likely to rise, at least for high earners. It's worth keeping in mind that the top individual tax rates are several percentage points higher than New Zealand in those countries we compare ourselves with. In Australia and the United Kingdom, it’s 45%, the United States top rate is 37% and across the EU-28 it averages 39.4% with Sweden and Denmark the highest at 55%.  A move higher seems inevitable, if not back to the 39% rate which prevailed between 2000 and 2009. 

During the 1970s and early 1980s the Robert Muldoon led National Government responded to a series of economic shocks with several ad-hoc measures.  These were increasingly ineffective and were swept away during the reforms of the 1984-1993 period. However, desperate times call for desperate measures and Grant Robertson or his successor might be tempted to follow the overseas examples of special levies. 

For example, in 2011 the United Kingdom introduced an annual charge on certain balance sheet liabilities and equity of banks. In 2017 Australia introduced a similar levy essentially only applicable to the four largest trading banks.

Australia also had a Budget Repair Levy of 2% on incomes over A$180,000 between 1 July 2014 and 30 June 2017. It was replaced by a permanent increase in the Medicare Levy to 2.5% for those with income over A$180,000.

Separate from special levies, the ugly combination of the inexorably rising cost of New Zealand Superannuation, a significantly damaged economy and weaker government finances, means the continued universality of New Zealand Superannuation will be increasingly debated. 

Options might include means testing, or a reintroduction of the deeply unpopular New Zealand Superannuation Surcharge, which applied in the 1990s.  An alternative to these might be the proposal made by Susan St. John, for a special tax to apply to recipients of New Zealand superannuation who are earning above a certain threshold. This proposal at least has the merit of fitting in with the principles of a progressive tax system as it targets those whose income indicates that they are not really in ‘need’ of New Zealand Superannuation. 

One other possibility might be to increase the GST rate, and barely three weeks ago Simon Bridges did not completely discount the option of doing so. 

However, the TWG noted that GST is seen as a regressive tax for low-income earners. It’s also worth noting that increasing the rate of tax for a consumption tax such as GST could slow down spending, which is contrary to what’s going to be required in order to help restart the economy.  

Instead what may happen over the medium-term is that GST may be extended to apply to financial services, something the TWG recommended be investigated.  This could happen in the wake of overseas changes in this area. Globally I expect to see a fierce debate emerge on the matter of expanding the ambit of GST, with countries looking to withdraw or tighten current exemptions around food and financial services.  

2. The taxation of capital.

Aside from short-term measures a longer-term implication will be increasing the tax on capital. This will also be a global issue. 

Inevitably, here in New Zealand that will mean the reignition of the debate over whether New Zealand should introduce a comprehensive capital gains tax. That’s already begun with former Prime Minister Bill English raising the possibility in a briefing to private investors. 

In the short term I suggest the answer will still be “no” for the simple reason it would do enormous damage to the Prime Minister’s reputation (and re-election hopes) for her to repudiate what she said little under a year ago that there would be no CGT while she was leader of the Labour Party.  

Putting that aside, we can expect Inland Revenue to ramp up its enforcement of property disposals. It’s even possible New Zealand First might be persuaded to abandon its opposition to making all residential property investment subject to a CGT.  

One of the key drawbacks to CGT is that it is a transactional tax – the tax only arises on disposal. If people aren't buying and selling, no tax rises and there's always been great concern about what they call the ‘lock in’ effect of a CGT. That is, people will not sell because they do not wish to trigger a tax liability. This means CGT revenues can be either a feast or a famine for governments who prefer more regular tax streams such as PAYE and GST.  

Given the politics around CGT other alternatives may be considered. Globally, the idea of a wealth tax has been gathering momentum since Thomas Piketty raised the idea in his monumental work Capital in the 21st Century.  A wealth tax is part of Senator Bernie Sanders’ platform. Here in New Zealand, the TWG dismissed a wealth tax as “a complex form of taxation that is likely to reduce the integrity of the tax system.”  

Re-examining the role of a wealth tax in the wake of the COVID-19 pandemic seems likely. The 5% fair dividend rate applying as part of the foreign investment fund regime is a de-facto wealth tax which could be adapted for this purpose (although at a much lower percentage, maybe a maximum of 2% as Piketty suggests). The fair dividend rate had its origins in the suggestion of the MacLeod Tax Working Group in 2001 of a applying risk-free rate of return methodology to the taxation of investment property. 

The TWG also rejected the idea of a land tax, noting Maori concerns and its terms of reference. But maybe a land tax could be introduced for non-resident landowners only. This would be in line with a trend I see repeatedly in overseas jurisdictions of either taxing non-residents more heavily than locals or restricting the available exemptions. For example, in Australia non-residents do not qualify for the 50% discount for assets held for more than 12 months. Together with higher income tax rates the result is the tax rate on property disposals can be as much as 45%. Similarly, in the United Kingdom and the United States estate taxes of up to 40% apply to assets situated there. Expect to see these issues debated both here and abroad over the coming decade. 

3. Environmental taxes will be more important.

Like the cost of New Zealand Superannuation, addressing the cost of climate change will soon push its way back up the tax agenda once the immediate COVID-19 pandemic crisis is past.  

As part of this, the importance of environmental taxes to the tax base will rise. The TWG final report noted that according to the OECD, New Zealand ranked 30th out of 33 OECD countries for environmental tax revenue as a share of total tax revenue in 2013.

The TWG’s reference to the growing importance of environmental taxes was something that got drowned out last year with the debate over CGT.  In his briefing at the launch of the TWG’s final report, Michael Cullen stressed the need to initially recycle revenues to help those farmers most affected transition to a greener economy.  

What we will see emerge is a range of short-term tactical actions with immediate application allied to longer-term measures all intended to encourage a switch to a greener economy.  

Tackling emissions in the transport sector could involve the use of congestion charging, putting more money into public transport including rapid electrification of trains and buses. Charging vehicle emissions could be part of this perhaps allied with subsidies to get older cars off the road, replacing them with newer, more fuel efficient cars as an interim measure. This could achieve three benefits: it lowers emissions, reduces costs for families who are dependent on cars to move around and finally improves road safety because newer cars are safer. It would be a better use of funds than subsidising the purchase of electric cars.  

The TWG recommended increasing the Waste Disposal Levy, currently $10 per tonne at landfills that accept household waste. The TWG noted the effect of increases in the equivalent levy in the United Kingdom as illustrated by the following graph: 

Landfill tax rates and waste volumes in the United Kingdom

 

Other initial measures which would also raise revenues and simultaneously encouraging behavioural change would be to remove fringe benefit tax on the use of public transport and, as in the United Kingdom, tie FBT to the level of emissions of the vehicle.  (The coming clampdown on the non-compliance around FBT on twin-cab utes might have the indirect effect of taking these high emission vehicles off the road).  

Longer term measures could include widening the scope of the emissions trading scheme although I would like to see that introduced alongside John Lohrentz’s proposal for a progressive tax on biological methane emissions.  

4. The corporate tax take will rise. 

Tax is power. And maybe once matters have settled down, one of the most significant effects will be a shift in the power of taxation back towards the state and democracies. This will reverse the trend of the past 30 years ago or so, where lobbyists for corporates and special interests have been able to drive down corporate tax rates. This trend has been most noticeable overseas but as the CGT debate last year revealed New Zealand is not immune to the same influences.  

The COVID-19 pandemic has almost certainly put paid to any idea of corporate income tax cuts. But the TWG noted that there was little justification for lowering corporate tax rates and a background paper prepared for it noted

“…the two recent reductions in the company tax rate in New Zealand (from 33% to 30% on 1 April 2008 and from 30% to 28% on 1 April 2011) did not cause a surge of FDI into New Zealand. Nor did it show up in New Zealand’s level of FDI increasing relative to Australia’s.”

How the backlash against corporates will initially manifest itself will be in the adoption of the OECD’s international tax initiatives such as Base Erosion and Profit Shifting, or BEPS, and the recently launched Global Anti-Base Erosion Proposal (“GloBE”) - Pillar Two. The OECD estimates aggressive tax planning by multinationals costs US$240 billion annually.  

Late last year, prior to the outbreak of coronavirus, these initiatives looked in danger of stalling after the United States indicated it might not adopt the measures.  This appeared to be the result of lobbying by American multinationals. However, the US Government’s finances like those of every other country have been devastated by the Pandemic.  

So, for a brief moment, I can see the OECD and the US government's intentions aligning, resulting in a relatively quick agreement on the changes to multinational taxation.  

In any case, the digital giants such as Google, Facebook, Apple and Amazon might well drop their opposition to the OECD’s proposals as the price of stopping the widespread introduction of digital services taxes. (The UK government has pushed ahead with its 2% DST effective as of 1st April).

Notwithstanding the OECD measures, social media tech companies might find themselves hit with advertising levies as a means of supporting local media. India raised 939 crores (about $207 million) for the year ended 31st March 2019 from a digital advertising levy. Expect to see other countries follow suit (it could be one way of supporting New Zealand journalism and media which is in crisis as the collapse of Bauer Media shows). 

This may now be the time to implement a global financial transactions tax. However, in order for an FTT to be effective, it must be universal. The European Union outlined a possible FTT back in 2013 but has been unable to reach agreement on its introduction. Without that universal agreement, an FTT is effectively inoperable because it is too easily avoided. Adopting the principle of never wasting a crisis, it will be interesting to see if the objections to an FTT are overcome by governments’ need for new sources of revenue. 

5. The power and reach of tax authorities will increase.

The final trend that will accelerate is one which has been happening very quietly over the past 10 years since the GFC. That is the swapping of data between tax authorities through initiatives such as FATCA and the OECD’s Common Reporting Standards or the Automatic Exchange of Information. 

According to Inland Revenue, since the CRS exchanges started in 2018 it has “received more than 1.5 million records on New Zealand tax residents from 74 jurisdictions.” These records relate to approximately 80,000 New Zealanders. Inland Revenue apparently intends to contact all those for whom it has received information and confirm they have met their obligations. 

Separately Inland Revenue has used information sharing agreements with Australia to collect $46 million of overdue child support for the year ended 30th June 2019. In the same year it sent the Australian Tax Office details of 149,031 student loan debtors for matching and obtained contact information for 81,875. 

The scale of this information sharing is unprecedented and has happened with very little public debate on the matter. Furthermore, exchanges under CRS are separate to specific information sharing which can happen as part of a double tax agreement between New Zealand and another jurisdiction. No specific data on those information exchanges is made public but anecdotally it is significant. 

A little-known feature of the multilateral agreement under CRS is that all signatories agree to undertake to assist in the collection of unpaid tax. Prior to CRS such agreements were negotiated individually as part of a double tax agreement. Under CRS Inland Revenue can now assist any of the other 68 jurisdictions with which it has activated the CRS Multilateral Competent Authority Agreement.

As Inland Revenue’s Business Transformation upgrade continues its data analytic capabilities will increase. My understanding is that the latest upgrade will now enable it to automatically assimilate information it receives under CRS and automatically connect it with taxpayers. This information will only be available to Inland Revenue who can then monitor the taxpayer’s compliance against the data it holds. A question then arises as to the extent Inland Revenue is using artificial intelligence and how that use is being monitored.  

Information sharing and the growing use of AI by Inland Revenue and other tax authorities will be a trend about which we should see increasing discussion over the next 10 years. For the moment, citizens appear to be paying little attention to what is happening.  How much longer will that inattention will continue? And what are the implications for privacy and democracy? Or is it a case of the ends of higher tax collections justify the means?  

Writing about the Easter 1916 Uprising a couple of years before Lenin’s alleged aphorism, Irish poet, W.B. Yates wrote “All changed, changed utterly.”  It is indeed all changed, changed utterly and the extent and impact of those changes to the tax landscape will only become clearer over the coming years. 

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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75 Comments

Great article, and much needed.
It is obvious we will need much more tax revenue, and it will need to be a combination of taxes as outlined.

There's an obvious 'tax' that hasn't really been considered much - Compulsory Kiwisaver.
Make it at 10% of Gross earnings, say. (pick a figure!)
At a time when Universal Superannuation is/will become more stressed, means test that welfare payment against Capital Assets held - ie: The family home and any Kiwisaver Balance/withdrawal. (rie: reduces the amount of Government expenditure)
It will have the added advantage of offsetting Kiwisaver withdrawal, as the aging take their money out, and also ( dare I say it!) support asset markets like the share market, as providers 'have to do something' with the weekly contributions. They could even be required to hold a specified ratio of Government Bonds.
I don't advocate it, but it may be coming!

A tax overhaul has been imminent really since that of the Lange/Douglas petered out. Labour look likely to return but it also seems likely their present leader will vacate not long after. Who could blame her, but that move would too open up the entire playing field. Traditionally Labour goes after what they perceive as those with too much money . CGT would not however gain revenue near rapidly enough. The two easy targets are firstly super an which will be means tested simply under the false flag of a new “tax bracket.” Secondly property wealth, already the local bodies exert a wealth tax by basing rates on the value of the property. Yes there is much obfuscation about the formula, with this being divided into that, but at the end of the day if your house is more valuable than that of your immediate neighbour you will simply pay more rates, like it or lump it. Thus the government have the mechanics readily available to piggy back onto that revenue.

"but it also seems likely their present leader will vacate not long after"

Based on what?

1. Getting too old to have baby number two...
2. Too hard and messy to deal with post virus economy...
3. Go out on a high while the rest of the world worships at your feet, so that...
4. Can secure next job in footsteps of predecessor which was always the end game anyway... UN role.

Head of WHO should be available.

Totes.

I heard the head of WHO got paid off by China to keep quiet back in Dec.

Add # 5 to above as - specific promises JA made about certain tax changes not happening on her watch, conveniently no longer apply!

Jacinda will stay only until such time as she can access the full ex prime minister retirement package.
And also GR can't wait to get his seat in the chair..

"CGT would not however gain revenue near rapidly enough."
Quite right. That's why 'going after' Kiwisaver' might be better? It's revenue - week in, week out. ( the more that goes into Private Funds, the more Government Bonds they have to buy?)
Besides, it 'cons' contributors into thinking they aren't being taxed, but 'saving' for their future.

Silver linings come in all shapes and sizes, in the Covid-19 case it will be (if overseas mortality rate-by-age group models are proved similar in NZ) 15% of over 80 yr old population and 10% of over 70-80 yr old population, decreasing % with decreasing age group mortality by infected groups resulting in a reduced cost burden to the current superannuation system, which will roll forward at reduced costs for the next 5 years as well before regaining current levels.
Someone cleverer than me and with the right numbers at hand could model this out and let us know what that really means.
Also as a result of the above you could expect a significant capital release happening, sale of established properties in the above affected groups and released inheritances and life insurance payouts to the next generation which has a much higher survival rate.
There is also the reduced burden on the state from aged care costs and associated medical costs going forward.
Model all of that out if you dare.....

There is a lot of different opinion re the actual CV19 cases existing in NZ. But what is certain is that at this point there are less than 20 patients sufficiently severe to warrant hospitalisation. That must be a very encouraging sign that immune systems of NZrs are reasonably robust and so far the vulnerable, elderly pre-existing etc, are staying out of harms way with reasonable efficiency.

I keep coming back to that. 800+ cases, 13 in hospital, one in icu. X10, that’s 8000, 130, 10. X100, that’s 80,000, 1300, 100. That last figure would be close on 8% of the worlds cases as of now. I suspect we could cope at a stretch, even doubling the icu figures. We certainly could with the x10 scenario. Good to see Bill English and Steven Joyce making some rational comments today.
BTW, isn’t Parker a f******t? We are being dictated tonby a bunch of muppets, aided by a compliant media. The level of questioning at the press conferences is pathetic. How about, “prime minister, given the low level of hospital admissions and the steady progression of new cases, do you think you are justified in trashing the economy?”

Figures based on a variable testing regime can only produce variable results. But the figures of hospital cases are obviously defined and that is the most important and accurate indicator available. Therefore and as you say, If hospital admissions stay under control and the cases not up to that level can continue to self heal, then NZ is tracking ok.

As an over 70 I will not be counting it as a silver lining. However you could lose 10% to Covid-19 but actually end up with more of us living longer - far fewer elderly deaths from swimming, car accidents, air pollution, etc. If you really want to save resources just cull us - my mother told me the Eskimos would send their grandparents out of the igloo to look for food in a winter storm when their resources were low.
Being over 70 I'd prefer savings by reducing subsidised tertiary education by 95% - from my perspective the country seems to be full of over qualified idiots - in my day only 4% of school leavers went to Uni and about half of them were turkeys.

Question Terry; why does a FTT need to be universal? In the context of your article I read 'global' as the meaning. Why can't the NZ Government just apply it for all transactions in NZ, especially for money leaving the country?

Otherwise an interesting article.

Thanks for your question. It's an interesting topic so I'm going to discuss a FTT in this week's podcast, the transcript of which will hopefully be up by the weekend.

CGT has got to happen sooner or later. It'd be great if this crisis were enough to get it over the line, but I doubt that's the case. Maybe if Labour get voted back in without NZ First...

Politics and previous promises now need to be put to one side. Everything has been turned on its head.

The government needs to objectively and logically set out to the public the new reality, and what needs to be done in terms of tax to address that.
As per the article, it will need to be a combination of new taxes and increases of existing taxes.

CGT on current falling prices? That will be losses reducing government tax income even further

CGT won't be backdated and I doubt they could even get it legislated before asset prices have gone through the floor. The benefit of CGT is, apart from a fairer tax system, to provide a significant revenue that ramps up a few years down the track. You didn't think we could may off this mess in 6 months did you?

I have no issues with CGT. Just stating the obvious. Assuming a CGT that kicks in when assets are sold, then the gain will be proceeds minus costs. It is unlikely that with the economic outlook ahead of us, that will be producing a lot of income.

The tax revenue is more in the medium to long term timeframe than short term.

For property we already have the 5 year brightline rule, so CGT is only going to come into play for properties sold more than 5 years down the line. So say you buy at the bottom of the market, which for argument's sake is 1 year from now, and sell 6 years later, there could well be a fair amount of capital gain.

For stock the CGT wins are sooner because currently people only tend to pay tax on capital gains if trading stock within 1 year. Plus the stock market moves a little quicker, and is more diverse, so there could easily be significant gains within a couple of years.

I think you would find you would have a tax credit, offset against future tax

I would have thought that if we have a CGT, we therefore have to be allowed to have a CLD. A Capital Loss Deduction. The government can't have it both ways can they. For any tax, we have to be allowed a corresponding deduction. The way the Coronavirus is being handled, we will have heaps of CLD, and bugger all CGT.

CGT - a side benefit will be the employment of masses of accountants and lawyers.

Great article. I agree and disagree with parts. Money in the hands of consumers, especially low and middle income should be a goal. I would argue that the Government should provide a degree of focus on building NZ industry, with a view to resilience and self sufficiency. Near term debt to produce long term wealth if you like. This crisis is highlighting the areas of weakness in our economy. This is an opportunity to identify them and prioritise solutions.

I don't see capital gains as a long term solution as much of what the market inflated is currently deflating, and ultimately I feel there should be a policy/structure balance that keeps the prices down. Besides CGT is too much about a theoretical value which is too flawed for a basis of tax.

Tax on income yes, but that depends on where the thresholds are. Remember tax takes money out of the hands of those who would otherwise spend it. Thus the lower and middle incomes would actually support the economy if they were given more money. And in reference to my other question, my understanding is an FTT at just 0.1 of 1% would bring in more tax than the entire current tax system, so wouldn't it be great to just replace it all with that?

Finally I have lingering concerns that the TWG output were too driven by ideology and prescription, to be entirely reliable as a good source of reference.

Agree. FTT plus GST on financial services all we need. And capital gains tax on art would help too.

Falling real interest rates are going to add to the superannuation problem. Somebody always pays when extreme monetary easing policies are pursued - its just a case of whether or not they know they are paying!

The reserve bank can't create more wealth. It only transfers it from some people to others, yes. As in recent years, from savers and pensioners to property investors.

Any discussion of raising NZ income tax levels that compares NZ rates to those of other countries should make mention of our GST rate. To compare our top rate with Australia's without mentioning that our GST is 5% higher, and doesn't have the exceptions their's does, is not very useful. The whole idea of raising GST was to offset it with lower income tax.

But Australia also has stamp duty and CGT.

I'll give you stamp duty but CGT is irrelevant for most "normal" folk due to the main residence exemption.
Also note that the Australian income tax tiers are much higher than NZ's. For example the 45% quoted in the article doesn't kick in until 180K.

"Also note that the Australian income tax tiers are much higher than NZ's. For example the 45% quoted in the article doesn't kick in until 180K."

Which only further emphasises how ridiculous it is that our top tax rate kicks in at $70k.

Labour had legislated to put the threshold up to $80k, but Key's government repealed that after they won in 2008. Since then increasing taxes has been taboo so we've been stuck with this system that's clearly not fit for purpose.

Amazing how you can be taxed at a top income rate but still not earn enough to *checks notes* get a mortgage.

Yes, and their houses cost more.

Correction. Less.

Outside the main cities their houses cost less. A lot less. You get more for your money and the wages are better and cost of living lower. Look out Australia for an incoming tide (although don't know what sort of work kiwi's will be offered there after all this).

MASKS we need to end the lockdown and use masks as china and taiwan are doing. lots of free money and no production means higher prices and higher taxes and tent cities this winter

Definitely.

The lockdown needs to end asap and a managed re entry to work planned and done.

I'm calling it, this lockdown as it is won't be 4 wks. The government can't take the pain from business or the cost. Nor can the people.

Top bracket of 50% on more than 200k, 39% on over 120k, some sort of additional punitive tax on over 65s still getting a good income and claiming super. Writing off student loans, land tax of some form, excluding family homes. CGT’s a non starter, too unreliable and would run the risk of turning people of equity investments, ie KiwiSaver. Public sector pay freeze needed, too.
As an aside, what a bunch of muppets are running this show. The minister of health going mountain biking, kris faafoi stretching the truth over his crazy decision to stop magazines publishing, Mike Bush not seeming to know what time of day it was at the press conference yesterday, now a sudden free for all of online shopping. Can’t usually stand Mike Hosking but his piece today is spot on.

100% agree, including on the Hosk! They also need to slash the Wellington bureaucracy. Won't happen under Labour's watch though

Agree re bureaucracy. Too many on gravy train down there. Absolutely obscene waste tax dollars.

It is a bleak future that Mr. Baucher is painting - higher tax and lower services. I think we have to admit that our current system is fundamentally broken. The welfare system doesn't work, that's obvious. We need to re-think it's purpose and how to achieve that.

I think the best thing we could do is move to an insurance model like we have with ACC. Financially, you are much better off getting hit by a car than getting cancer; one you have ACC looking after you and getting 80% salary the other you have the welfare system looking after you and a sickness benefit.

Despite the rise in $25 of the benefit, for a lot of people if they lost their job, going on the benefit would be a catastrophe. However, an insurance where you can get 80% of your salary for a year (maybe more) would be sufficient to get back into the work force without been financially devastated. And if a person has planned ahead and has savings to look after him or herself, he cannot access any government aid until that is all gone - so the government appears to support the feckless more than the prudent.

Finally the future that Mr. Baucher paints is so bleak it will only drive away more of our people from NZ. High tax and low services combined with a low wage economy and high house prices, doesn't sound good to me. Air NZ might be up and running with a lot of one way flights out of NZ.

I for one could not justify staying and having a family in NZ if I am to be taxed while I am alive and then taxed for dying. The obstacles in front of people trying to do the basics - commute to a job (petrol taxes, road pricing), keep a roof over their head (imputed rents/unrealised gains & ever increasing rates) and earn a salary (PAYE/Additional taxes) - and the sacrosanct nature of any government spending and it all being above question (though shall not question social spending or the Wellington bureaucracy, nor measure its output) are getting too much. Why would any Kiwi stay? Why would anyone try?

The host is dying and the answer is to feed the parasite even more?

This article reads as a very long wishlist, light on evidence and choc full of assertions and bizarre comparisons.

I'm struggling to fathom how, for example, bankrupt companies will pay this higher corporate tax rate, or even what amount surviving companies will be able to pay at all. This all seems like a recipe for even more unemployment, even more misery and an even more drawn out crisis.

Also increasing tax on corporates surely leads to less returns for shareholders (and less reinvestment for innovation) and therefore a greater reliance on super for retirement? It's a closed system. Basically our standard of living, however you measure that is going to slide for a long time to come. I'm hoping it's just trinkets and gadgets. I can do without them.

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One consequence I can foresee is the foobarring of our world-leading, simple and workable GST. I've had this to say in the past: the one-liner: as soon as we start exempting categories of consumption or differential rates, it's wrecked.

Once a first step onto this slippery slide is taken, the basis of our current GST - free of exemptions for the most part, single or zero rate for the most part - is foobarred. The exemptions list, being essentially political in the first place, is of course then open to pressure from identity groups for their favoured set of products. And all of them will have a justification, and some apparently sound reasons for arguing their cases. And all of them can Vote......Which will, in short order, turn the Exemptions List into an essentially pork-barrel politics exercise. The result will be a fatal and probably irrevocable infection of a hitherto internationally recognised best-practise ad valorem tax system. We probably have a Gubmint whose idealism, fearlessness and energy (and, now a massively expensive medical crisis) could induce them to take that first step.

Think about the difficulty in defining 'essential services', then try running that over a supermarket (with 20-30K SKU's) or an entire economy (Matt Ridley estimates 1 billion products for the UK).

Still, glass half full, there will be thousands of new jobs for GST Exemption Definers, List Printers or Web Content managers, Tax Auditors, software (consultants, yum, yum), accountants, lawyers - it's a long list when yer sits down and starts thinking.....but, of course whether Travel Agents and Aromatherapists can be retrained to be any of the above is a different, and more thorny, matter....

The cost of capital has been dirt cheap since the GFC due to central/reserve banks low interest rates along with QE causing malinvestment and the global property asset bubble we now have. So we have an issue the Government needs tax to pay for the pandemic bill and no one wants a CGT.

I propose then a levy (tax) like that applied to petrol is applied to capital. All mortgages and loans issued in New Zealand against property will have a 2.5% adder on top of the banks interest rate charged and collected by the bank/lender and forwarded to the IRD monthly. If the reserve bank doesn’t have the balls to price capital correctly then let the Government do it and collect on it. This would be the incentive needed to drive down borrowing.

Good idea that is worth exploring further. Could have different rates depending on what the loan is for as a method of incentivising / punishing to achieve government policy.

Put GST on interest paid. Stop the deduction of interest as a business expense. Rather destroys the banks' special privileges with dramatic effects though. Best to introduce ever so very gradually...

Great idea.

Downside would be a lot of boomers that hold the wealth have long since paid off their mortgages leaving the FHB to yet again shoulder the burden of over inflated prices and the tax.

It would drive prices down though one would imagine.

Fantastic idea. I would actually differentiate between FHB and property investors, and put a higher margin on property investors. Maybe something like 1.5% on FHB, and 5% on investors.

Any one remember the Laffer Curve ?

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The Tax Working Group was 100% correct when it dismissed a wealth tax as “a complex form of taxation that is likely to reduce the integrity of the tax system.” This is one of many reasons it is a terrible idea.

Wealth taxes (as opposed to capital gains taxes) are not gathering momentum. There are many international examples of them being abandoned after being experimented with. Taxing assets themselves instead of the income those assets generate is insane. CGT taxes the income from an asset when it is sold - it is not an annual tax on the asset itself.

> Print the money
> Inflate asset values
> Tax those assets for unrealised gains to pay for the money you printed.

Not seeing any agency issues here at all.

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personally, I think the Gov't is going to have to cut spending.

It's going to be increasingly difficult for the big government crowd to justify raising taxes at a time when businesses are failing left and right, and when we all know there are billions of dollars of worthless expenditure on the government's books. Hence why I call this article a wish list - it's the world as the author would like it to be, unfortunately it's wildly off from reality.

As is the not so small matter of responding to climate change. Remember, it was barely three months ago that smoke from Australia was affecting our atmosphere here.

they were started by man. not the climate. but dont let the truth get in the way of your agenda.

So, after causing unknown havoc across the private economy with the lockdown, the author is advocating strangling any survivors. That way we can all work for the government and live happily ever after. Or perhaps I am misunderstanding something here?

But maybe a land tax could be introduced for non-resident landowners only. This would be in line with a trend I see repeatedly in overseas jurisdictions of either taxing non-residents more heavily than locals or restricting the available exemptions.

Sounds good to me. If we have valuable resources foreigners want surely we should profit from them.

Too easy to avoid - make it non-Citizen.

Non-resident is better. We're not just a passport office at the bottom of the world, propped up by resident taxpayers to act as a House of Travel for European-based Kiwis who don't contribute to maintaining the state. Those days are gone.

I think the National party will have to come up with new ideas to win an election, yes the chances of tax cuts for those fortunate enough to still be earning over 70k are now zero.

The best way to make that unemployment figure a little less extreme is to lower the cost of hiring for business.

No point bringing in an envy tax if there's no one employed to tax.

Associated with tax will be -
UBI - we are almost there with this wage subsidy, unemployment and Nat super. They will now go all the way.
The benefit system will thus get the overdue makeover that was always politically impossible.
Associated will be a write- off of all benefit debts and possibly student debt - to be seen to be fair.

Mass of new taxes on the way to pay for the lockdown and spending such as wealth taxes, death duties, land and asset taxes.

Socialism is here!

They pretend to Pay Us, and We pretend to Work.....

Why would we be bailing out airlines if we where serious about emissions? Air New Zealand alone is the countries largest climate polluter, around 4% of New Zealands total greenhouse gas emissions. Saving it to them kill it by inches with greenhouse gas emissions is a massive waste of money that could have been used to retrain and reemploy its staff.

Add # 6: 12-16 weeks of lockdown and there won't be much of any kind of economy left to tax...what then?

Good article with some good points to debate - The key thing I see is that
1. We have our public Balance sheet in a good place to help NZ through this unlike many others - thanks to all previous governments of all colours.
2. Once we get through this we have to restock the piggy bank - ie get the debt back down as sure as eggs something else bad will happen - we will all have to contribute as we can in some way. Will take time but we must do this over time.
3. Look at re distributing the tax take fairly - it cant just be salary and wage earners paying. I've been in my own business for 35 years and would support a CGT - it would cost me a lot personally but be fair on people who don't have the capital I have built up - They don't take it all!!!. I also support a test on NZS - some people don't need it and to take it is simple greed. Lets get real about this.
At the end of the day it comes down to your outlook on life - we all come from the same place and end up in the same place. I support a market economy and have done well from it but at the end of the day the health and well being of all our citizens is most important now and in the future when the next "end of world" event occurs.

NZ needs a plan by Monday to get out of this lockdown NOW. Australia are coming out of theirs already but guess what... half of NSW didn't know a lockdown had been enforced only on 31 March. Tons people still out, businesses trading but the Aussies managed to well... manage things. They'll be out soon with way less carnage than here. The lucky country once again.

Our esteemed leader said we'd know by about Mon 6 April if the cases are coming down. Ok then we need a plan. THEY need a plan for us. It is criminal them holding the country to ransom then bringing in tons taxes or whatever to pay for their vanity projects under the guise of pandemics.

Masks, tests... whatever. The people need to get back to work asap. NZ cannot afford not to.

Calling an early end to lockdown. It won't last 4wks.

You’re absolutely right, but the ignorant masses haven’t woken up yet. Perhaps another 2-3 weeks and another 40-50k job losses might help them ponder whether they’ll have a job and an income. The lunatic socialist fringe are scheming a “once-in-a-lifetime” opportunity for govt to nationalise companies and industries, introduce UBI and other hair brained ideas. If we let them then we will be trashing the futures of our kids, and great grandchildren. Get prepared for countless bankruptcies, hundreds of thousands of job losses, suicides. Any intelligent person can see that this won’t end well. I’ve asked numerous people this very simple question: there are 50k global deaths so far from cv versus around 500k globally from the flu EVERY year. So, why don’t we shut down the global economy EVERY year for a couple of months? Seems like a straightforward question but the truth and common sense are nowhere in sight. And the Pied Piper brings us closer to the cliff while we queue for alcohol and debate mountain biking. We deserve everything that’s coming to us...

All good stuff Terry. Ever thought of being a Minister of Finance. We could do with a decent one about now.

Ha ha 'Cullen CGT' would be back soon on table, we cannot keep on massively borrowing from the future & socialising the loss with the mass, .. we do however.. have a Banks.. 'collective Wealth'.. which tuck in the past 30yrs... in the form of 'RE, properties' funds - Eventually? NZ will just have to follow the rest of the world...TO?
deflate those 'investment/RE wealth/properties' funds to be tap in back as a liquid funds that can be used in productive way... right now? you can imagine, those Banks loaning/hoarding the houses, worldwide? is not much different than.. 'hoarding' the gold deposits, sitting there in the hope it's keep on rising in value, by the time we need to have more bread & milk to eat? - I wonder what those hoarding value items would be..

I realise that this article is mainly about the government raising more revenue through increased taxes.
Like any business or household if you are spending more than is being earned then your spending should be addressed, such as,

. Ist year free student fee to all students, stop.
. NZ Super, means test for a period of time
. Home heating grant to all on the NZ Super, should be means tested.
. Go hard on those on the unemployment benefit and job seeker allowance, we are importing workers from the Islands to pick fruit.
. DPB recipients could be better managed and a disincentive put in place to stop having many children.
. Raise the top tax rate.

As we have a socialist Labour - coalition in power many of the above would hit their voter base.

Disclosure: 3 of the above suggestions would impact on my income.

Thanks for all your comments. Very much appreciated. I expect we'll be discussing the role of tax going forward for quite some time to come. In the meantime stay safe and be kind.

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