sign up log in
Want to go ad-free? Find out how, here.

Opinion: Why Norwegian style transparency on tax paid, income earned and net worth is the solution for tax avoidance

Opinion: Why Norwegian style transparency on tax paid, income earned and net worth is the solution for tax avoidance
Norway forces taxpayers to declare publicly how much they earned, how much tax they paid and their net worth every year.

By Bernard Hickey

Labour leader Phil Goff's idea of a new higher tax rate on very high income earners has scratched at a scab in New Zealand's economic and political life.

Tax avoidance, or in polite circles tax minimisation, has been the bane of our fiscal framework for the last decade. Labour's introduction of the 39 cent tax rate when it was last in power was designed to shift some of the tax burden onto the wealthiest.

Instead it helped create the biggest unintended consequence of the last decade. The boom in house prices from 2004 to 2008 was at least partially created by the imposition of this new tax rate. An entire cohort of taxpayers spent years arranging their financial affairs to avoid paying the 39 cent rate.

Often this involved creating family trusts or Loss Attributing Qualifiying Companies that bought or owned rental properties that made losses, particularly if they were highly leveraged with a lot of debt.

These losses were then claimed against regular incomes from salaries or wages to ensure the 39 cent rate was not paid. In particular, the gap between the family trust rate of 33 cents and that 39 cent rate turned into a black hole for the budget.

Many trusts were created simply to avoid having to pay that 39 cent rate. Westpac's economists estimated this tax avoidance activity was responsible for a 17% rise in house prices over that period. National's decision to remove the 39 cent tax rate was at least partly an admission that no matter how hard governments tried, the rich were able to structure their affairs to avoid that rate. Labour's plan to bring in a higher tax rate revived the debate again.

Goff was cautious not to say how much such a tax would raise and offered no solution to the problem of avoidance, other than to say there would be a 'crackdown' on avoidance. Politicians regularly promise crackdowns on avoidance, yet more than half of parliamentarians use their own family trusts and other company structures to, ahem, minimise tax. John Key was just as vocal in ridiculing Goff's call for a return to the future for a higher tax rate.

He said such tax rates rarely collect much because high income earners arrange their affairs quickly. Key is right. There are a legion of tax lawyers and accountants earning high salaries helping the very rich avoid paying tax. It has become something of a national pasttime for the richest 10% of our population.

So what is the solution because there has to be a solution. Goff's call for a new tax rate will continue to strike a nerve among voters and fiscal strategists in years to come as the gap widens between middle income earners and the wealthiest, and as deficits become endemic.

At some stage the richest 10% will have to pay more as the government tries to balance its books. But how? That is the question Goff needs to answer, even if Key won't ask the question.

Transparency the best hygiene

Transparency is the best form of disinfectant on this issue. One country that has a long history of using such a disinfectant to keep its economy strong while being fair is Norway. It publishes for all to see the net worth, income and taxpaid of all taxpayers.

It is controversial in Norway, particularly in an age when data hoarding electronic marketeers can use the information for all sorts of legal (and illegal) sales techniques. But it does mean there is nowhere to hide.

Property developers here who have never paid tax (and there are a few) will be plain for all to see. How would the tax avoiders feel if it was clear to their neighbours and relatives that they weren't pulling their weight?

It would be one way to rebalance the debate and tackle an issue at the heart of New Zealand's fiscal imbalances and social inequality.

Is there a politician brave enough to broach the subject?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

136 Comments

Hmm, I can see merit but it's a  tricky one that idea as many consider their incomes and assets as private information much like a medical file. It will just habour even more resentment in society would it not? You would also have to make all Trust assets and holders public

How about we instead just have a IRD willing to do their actual job and Revenue Minister who has a actual clue? Plus some real gutsy  changes to our tax laws around property and trusts?

Up
0

How about we bring the argument back to the basic questions : When did the government begin to focus on extending it's reach into societal behaviour and into tax-payers' pockets ? .......... 1999 !

......... When did tax-payers begin reacting by tax-minimisation schemes such as massive use of LAQC's ? .......... 2000 !

So , rather than continue to add bandages to the wounds created by Michael Cullen ( which his WFF was , a solution to the financial imbalances of his own creation ) ........ Lets simply undo the seriously dopey policies that he introduced .......

........ un-Cullenise the bloody economy ! So clean .So simple . Fewer bureaucrats . Fewer rules , regulations , and fewer " pies " and " packages " .

Up
0

Too much damage has been done though Gummy. Totally agree but sometimes you must kill rot with something a little more politically toxic to those creating the rot

Up
0

Would this include income from benefits?

Up
0

I would expect it to....one rule for all.

regards

 

Up
0

Would we be allowed then to chide beneficiaries for not pulling their weight and earning enough and paying enough tax to help the country out?

Up
0

 

"So what is the solution because there has to be a solution. Goff's call for a new tax rate will continue to strike a nerve among voters and fiscal strategists in years to come as the gap widens between middle income earners and the wealthiest, and as deficits become endemic.

At some stage the richest 10% will have to pay more as the government tries to balance its books. But how? That is the question Goff needs to answer, even if Key won't ask the question."

Cart before the horse Bernard!....why expect income and wealth equality when people are not ants.? Is this not the real problem. The lazy bugger does not deserve the fruits of someone else's hard work or good luck.

Instead of stealing from the 'rich' to pay for govt waste and for the slices of pork used to buy the votes...might it not be wiser to stop pollies buying votes and to slash govt waste. Might it not be better to get rid of the Higher Salaries Commission old boys club. Mark all state incomes to match adjustments to pension rates and cut down the bloated handouts to the Sir Humphreys?

Granted there needs to be some form of cgt aimed at killing off the property and land speculation...but to aim to steal more from those who are successful is a quick way to see the capital bugger off out of NZ.

 

Up
0

Well, it we're throwing our privacy completely away to the new age of State thuggery and barbarism, let's make a start here Bernard.

You publish on this site, today,  full details of your income for the last ten years, and taxes you've paid.

If you don't do this, why not?

Up
0

Sure.

I will if you will ;)

That's why this works. When everyone does it then it's fair.

cheers

Bernard

Up
0

No, when everyone 'is forced' to, it's a 1984 styled police state. No privacy. No freedom. Look at the lives being lost in so many repressive regimes around the world at the moment,  humans seeking freedom ,and then wonder why we're so hell bent in the West to run headlong into the repression of our own private lives at the hand of ruthless States implementing brutality such as this. No wonder Norway is suffering bombings lately. How hideous.

Up
0

'Free' to have 43 million people on food stamps while 1% of the population own 90% of the wealth and income (and pay for massages for their poodles)?

America is the 'bastion' of freedom where the rich are free to get much richer at the expense of the poor and the middle.

It's one of the reasons the world is  in such a financial mess.

cheers

Bernard

Up
0

Getcha facts right , Bernard . The top 1 % in the USA not not own 90 % of the wealth..

..... The top 25 % own 87 % of all wealth .....( 2009 )...

And given the skewered natured of asset ownership , such as a few billionaires who own a disproportionate amount of wealth , the Joe 6-Pack in the 75 % who own just 13 % of all net assets in the USA , isn't necessarily " poor " .

Up
0

Gummy,

Here's the best data I've seen on US wealth from UC SC

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

What I should have said is that the net worth of the top 1% is the same as that owned by the bottom 90%. Fair cop.

http://sociology.ucsc.edu/whorulesamerica/power/images/wealth/Figure_1…

You're right that the top 1% 'only' own 35% of net worth. The bottom 80% own 15% of net worth and the next 10% own 12%.

The top 20% own 85% of US net worth. That was in 2007.

It's gotten worse since then

 

cheers

Bernard

Up
0

still the US situation is not relevant to the NZ situation

Up
0

Bernard : At the risk of quibbling , you say that the top 20 % own 85 % of all assets in the USA  , 2007 , and that " its got worse since then " . ....... Yet my figgers show 25 % at the top owning 87 % of all assets .......... in 2009 ! ........

..... Seems to be not getting " worse " , but in fact , a significantly more equalised distribution of assets .. .. A   27.9 % re-distribution downwards in just 2 years ! ......Crikey .

. .... Yay ! The USA is a totally brill and funky place , dude .

Up
0

@ BH You've been watching too many Hollywood movies.

Up
0

By the way I should have added that if I'm not mistaken, that filed Federal Tax retruns in the United States are a matter of public record should you wish to obtain them. I don't know if that alos applies to State Tax returns.

Up
0

with all their state and fed deductions you would never work out what someones income is

Up
0

Have you seen Inside Job yet?

Up for an Oscar I'm told.

cheers

Bernard

Up
0

Congratulations ! ..... But for those of us " out of the loop " , can you please explain further ( not being a smart-arse for once , really don't know  what his is about ) .

Up
0

..[...... hmmmm , odd ! ....... One reply will be ample sufficiency .......... Where's this " 2 blogs-for-one hit  " shite emanate from ? ...... ]

Up
0

But but Bernard...how can anyone be sure the published data is accurate?....and it would require an army of bureaucrats to manage it...and that would cost another hundred million a year....and would it really achieve anything other than exposing families and individuals to the activity of the scum and garbage in society who would use the information like a handbook on who to grab first.

Hello to the departure of capital and those who might otherwise set up real productive employment.

Do you really think such information would not be used by the criminal scum in NZ?

Up
0

Pretty simple. IRD just publishes the tax returns.

Then we'll see when the likes of property developer Andrew Krukziener pays no tax on income earned of NZ$5 mln over an 11 year period.

See here Jenni McManus' reporting on Krukziener here.

http://www.stuff.co.nz/business/4147928/Decision-spotlights-business-lo…

At the centre of the dispute is the question of whether the $5m Mr Krukziener received as living expenses between 1991 and 2002 should be classified as a series of loans, or as income.

The IRD contended it was income and, therefore, was taxable. There was no commercial rationale for the advances, other than tax avoidance, it said.

The court heard that since 1985, Mr Krukziener did more than 80 property investments or developments, most of them profitable. The projects were managed and controlled by the Felix Trust and, later, by Krukziener Properties. Each was managed by a separate entity, usually a trading trust. Mr Krukziener was a beneficiary or shareholder of the trust in most cases but no profit was ever allocated to him.

Instead of receiving a salary, Mr Krukziener received what he describes as loans from the trusts. There were no repayment agreements and no demands for repayment though Mr Krukziener's started making repayments in 1997, clearing his debt by 2002. The repayments were made from non-taxable capital distributions following the sale of property owned by one of the group companies or trusts.

This is how the other 5% lives. It would be nice to see it in public.

And then ask the tax avoiders how they feel about not pulling their weight....

cheers

Bernard

Up
0

Give up Bernard....it's a silly idea....implemented here it would lead to capital flight and to the bigger cities rapidly displaying income apartheid zones. Bad enough as it is now.

Up
0

"Bernard, your idea makes me and my accountant very nervous, so here are some spurious justifications for pretending such ideas are unworkable and should be discarded."

Up
0

How about looking to Norway as a practical reason why it would work, and the dis-advantages....

regards

Up
0

The IRD contended it was income and, therefore, was taxable. There was no commercial rationale for the advances, other than tax avoidance, it said. 

Shouldn't they have said "other than tax evasion".

I always thought "avoidance" was legal/legitimate ways to minimise tax and "evasion" was the illegal stuff which can be prosecuted.

There seems to be so much of both sorts going on even the IRD gets in a muddle over it.

 

Up
0

If there is no good commenrical reasons, the tax avoidance provisons apply..it may be in the eye of the tax paper as commercial however not by the court of law, see the difference? Intention is the key for crossing the line.

Up
0

So all those folks avoiding Cullen's .39 tax rate on their principle income by running loss making rentals had crossed the line?  Why else run a loss making rental business?

Up
0

If there is no business plan to derive a profit, the deductibility of expenses is questionable, interest, rates etc. anti-avoidance provisions potentially apply...it would be an interesting tax case which has been discussed in tax circles.

Up
0

So I suppose the defence would be that there was an intention to someday raise the rent (or pay down the debt) to make the business profitable?

Is there some period of time stipulated in law within which such a business has to show a profit?

Up
0

With heavy negatively geared properties which were structered for only the capital gain effect I don't see a robust defence. Still no case law so you pay your money and take your chances.

Up
0

Bernard, I thought you had your own business, there is a clear difference between, company surplus, shareholders salaries for effort and dividends for return on equity which may head in different directions on a tax return. It an't that simple and actually the IRD can data mine and catch the bad buggers without the witch hunt in the media and jo public who will never understand the true picture even if published.

Up
0

LOL Weak come back Bernard, usually we have some common ground however not on this one.

Two theroies on this on:

1. You must have been taking some mind altering substances when you were in party mode on the roof top pool at the Cosompolitian of Las Vegas during new years me thinks.

2. You are having a little stirr :-)

Up
0

Speckles

I am personally affronted that you would suggest I take mind altering substances and enjoy a good stir! ;)

If only. Most fun I had with substances in Vegas was sparkling water and the odd cup of (bad) coffee.

Was preserving the pennies during my wife's conference.

cheers

Bernard

Up
0

Well I recall you stated you were looking after you children while your wife was going to attend a conference so it was totally tounge in cheek. Your affronted, so I apologies for the offence.

However your proposals will leave many people affronted.

Personally I think you don't understand the current tax system and powers the IRD have for anti-avoidance and data matching. I'm actually surprised by your article, usually I feel  you  research well the wider issues and wonder why you don't asked the question why the IRD does not use the power it already has on anti-avoidance.

Up
0

Well I recall you stated you were looking after you children while your wife was going to attend a conference so it was totally tounge in cheek. Your affronted, so I apologies for the offence.

However your proposals will leave many people affronted.

Personally I think you don't understand the current tax system and powers the IRD have for anti-avoidance and data matching. I'm actually surprised by your article, usually I feel  you  research well the wider issues and wonder why you don't asked the question why the IRD does not use the power it already has on anti-avoidance.

Up
0

Speckles: steady, you'll be applying the label "ToyBoy" next.
Speckles: On the matter of property developer Andrew Krukziener above. Applying  Krukziener's reasoning it would seem all builders and construction companies have the same "reasons", and "intentions" as he, and therefore must be mugs if they are paying tax. How does he and his ilk get away with it. It seems the only mistake he made was taking too long to pay the loans back. Yet he still turned all his "profits" from his development business into "capital profits".

Up
0

QED

Up
0

Ohhh, a challenge. This will be good

Up
0

"Well, if we're throwing our privacy completely away to the new age of corporate thuggery and barbarism, let's make a start here Bernard."

There, fixed that for you.

You're welcome.

Up
0

Corporate thuggery?

People are 'forced' to pay tax.

Some people avoid it.

How do you think the PAYE taxpayers and responsible corporates feel about those corporates and individuals who don't pay their fair share.

We're a community.

If you people want to exempt themselves from the community then they need to move to a tax free Island...

cheers

Bernard

Up
0

How do you think the PAYE taxpayers and responsible corporates feel about those corporates and individuals who don't pay their fair share.

That is EXACTLY the point. A lot of high income earners (I suppose I would have to categorise myself as one) accept their duty to pay a higher proportion of their income in taxes as long as long as the burden is distributed fairly. Bring it on I say.

Up
0

Governments are owned by the corporations. That's not the frothy raving of conspiracy nutters, it's a demonstrable fact. Nothing gets done without the explicit approval of corporations, and in fact every idea mooted or implemented originates with the corporations.

For example, corporations earn vast wealth for themselves, yet pay very little tax - if any - compared to non-corporate entities and people. If governments represented anyone other than corporations, that state of affairs wouldn't exist.

"Government" is merely a holding pattern for those planning to "retire" into lucrative BoD figurehead positions.

 

Up
0

Very true, How is it possible the Corporations have more rights than actual 'living beings'?

And why would ANY real democracy or community allow such a concept?

This MUST be changed.

Up
0

Quail Island perhaps?

Up
0

tax avoidance is playing by the rules...tax evasion is the serious issue. Avoidance is minimised by changing the rules, evasion given the general level of incomes and on asset accretion test can be easily detremined given even our higher income in New Zealand and general individual weath is relatively modest.

 

The IRD already has powerful rules and deep pockets to prosecute they just need to execute no need for a witch hunt society.

 

With political will the solution is easy.

 

 

 

 

 

Up
0

As I always thought - change the rules which legitimise avoidance.

Up
0

I've come into this discussion late.... however

 

why not publish the income or benefit of anyone who receives salary, wages from govt, local govt, quangos etc

Up
0

Would this transparency apply to beneficiaries, criminals, cash deals by tradesmen, small businesses and lifestylers?  A noble aim but can't see it working here. 

Up
0

Beneficiaries would be published just like anyone else.

Criminals....simple.....suspect your neighbour with a new mercedes every year is a drug dealer, look up his/her income........if he's on $25K then he's obviously dodging tax....let IRD know....

Tradesmen, as criminals....

Small business, lifestylers as criminals.....

I dont explicitly mean the last two are crims in any way of course....

regards

Up
0

This from a reader (RR) commenting on this piece at the NZHerald. This is how some people think:

What a stupid idea, publishing what tax people pay. 40 % of New Zealanders pay no tax whatsoever, many collecting more back in working for families than they pay. 



I think most in NZ would see paying no tax as a badge of pride, I know I do.



As well as earning 6 figures, I pay no tax whatsoever (all legal) and thanks to Labour I also make sure to collect my Kiwisaver tax credit paid for by the minimum wagers who can't afford to put money into Kiwisaver. Kiwisaver is the best way I have seen of transferring wealth from the poor to the rich, well done Labour. 

Interest free student loans is another great example of the poor, whose kids don't usually go to uni, funding the kids of the rich. Go Labour

Up
0

What a jerk (that reader, not you). Let's hope not too many people feel like him.

Personnally nothing to hide so wouldn't mind  - so long as everybody, and I mean everybody, disclosed the same info. But I can see how the issues mentioned above (information being misused by not-so-well meaning people, cost of gathering/publishing data etc) could be a problem.

Up
0

It's a daft idea Elley. Best example of that is if you won 10 million in Lotto this year.... your IRD info report would expose you next year because of the massive change in tax paid. So you go from having community security to being a target. Knowing that was your future...you would leave NZ with your millions.

  • Elley...tax paid 2011...$15000 income $50ooo
  •            tax paid 2012...$330ooo   income $1000000
  • address... a street with no real security in Targetville 3o miles from the nearest Police station. 
Up
0

Yep, I realise that and that's why I agree with the issues you mentioned in particular about the info being misused by scums. That said, I don't play Lotto so I'm quite safe :) My worry wouldn't be so much about having stuff stolen than kids held for ransom.

In a way, it might be an eye-opener for a number of people calling for higher tax rates on higher incomes to see how much tax said people already pay (I'm talking about the honest ones).

Up
0

Good point

Up
0

True enough but that information would only serve to bolster the socialists desire to "work" the envy vote. It would not be the huge tax paid by Wolly bit that would sink into the porridge between the socialist earholes...it would be the massive income collected.

The idea is a recipe for disaster. It smells worse than the dead ewe next door that was about to explode before we carted it away. Put you off lamb that would.

Up
0

Points taken. I don't see such a proposal ever getting enough support to be implemented anyway. As someone said, many people see their income/tax as just as private information as their medical records. And people like the person quoted by Bernard who takes pride in earning a good income while paying zero tax probably couldn't ever be shamed so it wouldn't really help anyway.

 

Up
0

In terms of a target from lotto, my understanding is those writing begging letters and other dodgy types have the info any way.

Does it make them any more of a target than a "real" rich person today?

Sit outside a random private school, look for an expensive car, carefully follow it over a period of days....you have the kid(s), the car, the route and the home address.

regards

Up
0

Oh that's just great steven...now we can expect the IRD to be parked up outside the private schools!

Up
0

With current tax avoidance rules the IRD could hit this guy hard if you take his story as read. You can't have a six figure income and pay no tax legally unless you have serious carry forward losses, which usually means you have loss the money in the past.

Up
0

Good idea, I think we need to move away from this massive industry of tax reduction we seem to have created here, not just in property.

Aren't we second only to the US now in numbers of accountants and lawyers? that's no mean feat considering we have ACC which reduces a large amount of things going to lawyers an courts.
Up
0

Well, Ive decided that IF it includes ALL Banks and Corps to disclose everything publicly also then I'm for it. 

I think I know the reason they do this in Norway and it has more to do with their local environment and terrain. Many decades ago Tax avoiders in Norway who own land in places very hard to get too (i'm talking very hard, like foot bridge across gorges a 1000 foot up) would just remove the bridge so the tax man could never come a knocking. I'm sure this kind of thing was still going on in many remote areas there. Use the environment to your advantage. How do I know this story? Well, I went to Norway back in 1999 for a while. Fantastic place and some fo the most beautiful women Ive ever seen 

Up
0

The enforcement of the income tax, especially in a time of economic stress, is increasingly Draconian and irresponsible.   There are also serious questions about our tax systems fairness (burden on top and middle class), efficiency, and not to mention where the money "collected" is ultimately directed.

Sadly, I'm all for tax avoidance these days. In principle I am supportive of a minimal tax to pay for a small government only which provides essential services to the public.  But that is not what we have ended up with in NZ.

Paying tax in this country has become a unsustainable and wasteful burden on the few remaining productive workers and geniune small businesses.  Is that a reflection of a healthy economy and society?

At this point I am all for starving the beast.

Up
0

Are you Libertarian Matt? I am in many ways

Up
0

Sure am... very supportive of Austrian / Free market economic theory and libertarian social policies. 

Up
0

Olly, olla ! - Nationalisation of the entire property market including rentals. This sector of our industry is out of proportion – a gigantic scam. Greed and dishonesty in this business is not only increasingly killing families and hard working Kiwis – but the development of valuable other industries for our nation.

Same with the bloody banks:

http://www.youtube.com/watch?v=KgNzarXntmQ

Up
0

How the hell would we pull that one off? Outlaw private residential rentals? This I'm fine with. hehe

Up
0

In case entire societies get attacked by private market behaviour – nationalised them.

Up
0

Quite right Walter...we have to take the individual out of the game and impose total govt control...it's the only way to make sure everyone regardless of effort attitude or luck, ends up exactly the same. Freedom sucks. Long live Socialism.

Up
0

Yes Wolly, I see my self as capitalist , supporting free market mechanisms, but with fair and social principles in doing business. When these principles are under threat by certain industries, drastic measures need to be taken for changes.

Up
0

One of the basic assumptions here is that no-one voluntarily pays tax.

Scott Adams has written an interesting piece recently about what it would take to make the rich _want_ to pay tax: http://online.wsj.com/article/SB10001424052748703293204576106164123424314.html

It's an interesting idea - because the widespread tax evasion/avoidance is actually a far more powerful indication of people's views than our tri-annual politician's beauty contest.  Most NZers just don't believe that government spending is worthwhile, and so will do anything they can to avoid it.  This ranges from tradespeople doing cash jobs right up to politicians with their family trusts.

If there were a different relationship, so that taxpayers believed in the value of government spending, or received a benefit for the tax that they paid, the whole thing could be quite different.

Up
0

New Zealanders, rightfully so, value their privacy. I have no God-given right to know how much you earn and how much tax you pay, and you have no God-given right to know how much I earn and how much tax I pay.

The idea proposed would cut right across that and would breach numerous of our statutes, including the Bill of Rights.  It’s an idea without wings and merit.

Up
0

I have no God-given right to know how much you earn and how much tax you pay, and you have no God-given right to know how much I earn and how much tax I pay.

 

Yes David – put that in context with a good catholic – bravo very important !!!!!

Up
0

It's a turn-of-phrase in English, Kunst – (English is not your first language, right?) - it actually doesn't have a particularly religious meaning unless you want to read it that way.

Up
0

Fellow sinner David B  :  You are always welcome in the Church of the Latter-Day Gummy Bear .............. We never judge a man by his cloth or suburb ......... But if you happen to have your VISA card on you , ....that'll do nicely .....

... Come on in , brethren .

Up
0

Actually I do think I have a right to know how much other people are contributing to the tax take and exposing those that have found work arounds to avoid tax. I pay a significant amount of tax each year and I want to make sure everyone else is paying there fair share. Last year my wife and I paid over $50k in taxes.

Why are people so precious about keeping their incomes a secret. Do you not think you are worth what you are getting paid? I have no problems telling co workers what I earn if it comes up. I don't go out of my way to tell them and the only time I would withold the information is if it was someone I didn't know very well or if I know they are on a low income job and I would not want them to feel bad.

People need to realize that income secrecy only benefits the company they work for. I am a manager so know the salaries of a large number of people. Peoples ability have no bearing on their pay and it's all what a person negotiated when they started the job. I would expect most peoplse salaries to increase if this information was made public.

Up
0

You are only looking at a small part of the proposal.  It is already fairly easy to estimate a salary and tax paid for an employee.  What the proposal says is for people's net worth to be disclosed as well as salaries and presumably any other income streams.  Therefore it would be much more interesting than just salary disclosure.  Imagine the proposal was introduced and everyone participated honestly, (big "if," I know) but anyway:  What would become apparent is all the lies people tell about their finances.  Eg the people who squirrel away funds, freehold properties and minimise their wealth in public vs the tossers who skite about their wealth when in fact they probably only own a part share of some heavily mortgaged investment property.  People's privacy would be blown away and lots of people would hate it.

Up
0

lol, my father was a very wealthy man and he always used to get a laugh out of going into the homes of the skitting wannbes that you describe. He had a way of figuring out very quickly who really had a buck or two, and who didn't but wanted you to believe they did. As he said, they may have a big flash house, but they also have a big monty on it. How can you tell the difference? Actually it’s relatively easy. Go into their homes, and there's no expensive art work or collectibles on the walls/ floors.

I've often wondered if that's why minimalism (as a form of interior design) is so popular in NZ? People are so much in debt that they don't have any money to buy anything else to put in the house. Most genuinely rich people I know have at least a couple of hundred grand on the walls, in addition to the flash house, sometimes much much more.

Up
0

New point of relevance how do you a get clear picture when some asset rich and cash poor and you need to consider accumulation of multiple entity statemenst of financial position to get a complete picture of wealth. This proposal would add confusion not achieve the clarity you seek.

 

I suspect there are two catergories of tax evasion, one where people return essentially zip and the IRD should catch them for their greed, i.e developers you mention and it appears they catch up with them.

 

Then people like tradesme who do cash job which reflect a subset of their entire income, they may very well still return reasonable income so you are still none the wiser. Disclose or not disclose.

 

You would only catch those who life style is far out of wack from their reported incomes and I would argue the IRD should be able to already catch them with some smart data matching.

 

 

 

Up
0

Perhaps people should have to wear an armband signifying their income bracket?  May be one for any diseases they have too?  Perhaps a sign outside their house as well?

Maybe an arband with their IQ would be helpful?  It could be useful to prevent talking with stupid people who have silly ideas.  It would be much easier to shun people without having awkward conversations with them first!

Up
0

They would come in handy at JDV on a Friday evening; get to the lasses with the purple armbands, early.

Up
0

Most people are paying there fair share. The people who are claiming the right to privacy etc ate the ones who are having a free ride on the system....so bring it on Bernard, you have them really squirming now!

Up
0

Bernard

I am for disclosing tax paid, provided you also diclose net contribution to society.

i.e. every adult citizen should disclose how much they pay to society in tax and also how much they take from society in terms of welfare transfers.

It should have YTD and cummulative over the life of the adult.

Bernard - you are correct that there are people in the upper income brackets who avoid paying tax. However, having lived in high-tax, high-welfare countries such as Japan and Norway, the system only works if everyone plays by the rules. i..e I had no issue paying high taxes in these countries because I could see the benefits I received from an excellent health and education system. I also knew that everyone else was playing fair. Everyone worked hard, paid their shares of taxes and did not abuse the system. Hence, high-tax, high welfare states only work in homegeous, ususally single-culture societies with  a strong bias to comformity (this is not the case in NZ).

I resent the level of tax I pay in NZ because I know that:

a. Certain people do not pay their fair share of taxes, beccause of holes in the tax system (which you highlight in your article);

b. There are a % of people who abuse the welfare system; and

c. Most importantly, there is a growing segment of people who waste their excellent free education and do not work hard and spend their lives on welfare benefits.      

I have spent several years doing voluntary work in 3rd world countries and it makes me so mad when I see people waste our education system and them to expect the welfare system to look after them. 

Up
0

Who loves history? You will love this look back:

http://www.youtube.com/watch?v=LfascZSTU4o&feature=grec_browse

Up
0

too many assumptions, he has travelled the world, parties up in Vegas for holidays, most likely at the high rolers table and has set up his own business, on balance you would have no idea what is income is given his age and assuming he is  salaried professional

Up
0

Yes, agreed, interest.co.nz is published by JDJL.ltd, the sole shareholder and director being David Chaston. You could assume Bernard Hickey is on some form of incentive performance agreement with a future take or pay contract should his high profile persona expand the business. Until that time you might even assume he is on a nominal salary. In a recent article BH even disclosed he was taken to Las Vegas by his wife.

Up
0

I know and that is why I said it as I asked him the question...just think the conclusion people would come to with published tax returns LOL

Up
0

ahhhhh the sarcasim an't getting thru...good grief !!!! :-)

Up
0

ahhhhh the sarcasim an't getting thru...good grief !!!! :-)

Up
0

"Property developers here who have never paid tax (and there are a few) will be plain for all to see."

Bernard, you do realise that most developers actually have huge tax losses on their books (thanks to 2008-2011) and probably won't be paying any tax for the next ten years even if they make a profit anyway.

But as usual with "Bernard" plans (rather like Dilbert's schemes) there is one critical flaw.  When you show the income earned and tax paid from the IRD - do you really expect to see the income earned will be $1m and tax paid $1?  Obviously the IRD might have spotted that one first!  The tax paid will always be exactly right for the income declared, Dilbert!

All you will see is how little income someone has declared, and I think most property developers and their accountants would be best pleased if their net income was less than zero and they still managed to upgrade the company runabout to a 2011 Ferrari 612.

Anyway why are property developers always the villains? What about the bankers? The media moguls (especially website editors)?  The Local and Central Government bureaucratic fat cats?

Up
0

Hi Ivan

You reckon is mid thirties I thought a bit older. BH how old are you? :)

I have no problems about having my net tax contribution published. I pay a shite load of tax and I am proud of being a contributing member to society.

Since Norway has had this tax policy in BH, the the tax take increased or decreased?

Regards

 

Up
0

What? BH doesn't have a wikipaedia page.

Easily mid 40s though.  Middle aged and grumpy!

Up
0

this seems like a good idea in terms of shaming people into paying their fair share of tax. but imagine the direct marketing you'd end up suffering if anyone could figure out who had a few hundred to spare each week!

side note - this is my second year of running my own contracting business and having now seen the difference in the amount of tax i'm paying vs when i was an employee, i'd be very reluctant to ever go back to being an employee again.

it would be good if the tax system wasn't set up to allow avoidance by only the rich or well educated people in high demand jobs where you have a higher degree of bargaining power.

having a society where a small group has a lot more money than everyone else is a stupid idea anyway. all that ends up happening is that you have a jealous population and increased criminal activity. do you want to live well in a nice place where people are friendly (hopefully NZ) or live very well in a place where nobody on the street will look you in the eye or where nobody will give you CPR incase they get sued for doing it wrong (ie america)?

Up
0

Ok, so people may not be paying their fair share of tax, how much difference do you think it would make if everyone did? Tinker with some laws make tax fair but at the end of the day we are pretty much taxed out. The future is going to have to be less government spending and perhaps we should look where the spending really goes while we are at it.

 

http://www.telegraph.co.uk/news/newstopics/politics/8307435/Council-sta…

Up
0

Investment Property is a long way from being  "taxed out" Andrew. Hence people still think there is money to be made via producing absolutely NOTHING!

I say tax the thuck out of it

Up
0

It may not be taxed however do you think many actually have the cashflow to pay a GCT?

Thats right, economy just take another step down.

Up
0

That's the point Speckles, they won't!,  and be forced to sell on mass scale dropping the prices and lifting the economy via new/ first home  buyers who have been waiting in the wings to start a family in their own new home! Maybe even without help from WFF's (yay)

Your assumption is that only property hoarders help make the economy function! Well, I don't believe that is the case, hence our current loser economy

Wealth transfer 2.0

Up
0

No, again you assume too much!!! Wealth destruction is never a good thing, especially as the debt remains and you have to look at the relative weight of different economic forces. So you assume a CGT would only apply for property investors?

Up
0

The wealth destruction has already occurred. PI's just don't know it yet. I said 'wealth transfer' but this time in the right direction ;-)

No one cares about Capital Gains loss IF you buy for the purpose of it being a "home" Remember that concept?

Even your council rates might have to come down!

Up
0

It may not be taxed however do you think many actually have the cashflow to pay a GCT?

Thats right, economy just take another step down.

Up
0

Now if I was earning  X 100s of K per year or even X millions per yr, and had trusts and other stuff set up so I did not have to pay so much or any tax...which runs into 100s of 1000s  or millions per yr...

Yep I would resent that being public knowledge, but at the end of the day, would I care ? no way!

Sry this openness thing may work for MP expense a/cs where their income is dependent on integrety...votes...This just doesn't apply to where tax avoidance on such a large scale....it more than likely to be an unspoken bragging /ego thing.

Anyway its just another "band aid" to stop the bleeding of a system that is inherently screwed up by decades of band aids.

And trying to sort it out with more taxes on this and that, is just another compensative band aid .

We tend to believe the more complex we get it the better off it will be...and end up where we are now

KISS...Keep It Simple Stupid..

.If you earn X amount on wage salary  you pay Y amount of tax...period...its not written off against another business venture here or there or a trust.

If you have more than 1 job, source of income...each is treated separate....and that business, tax haven, trust down the road...if that runs at a lose...it is in effect not productive to the country...it goes into receivership or liquidated....If you want to 'invest' more money into it,...fine but do so AFTER  tax......like any other low income person may go to the casino after PAYEE.

It basically boils down to joe public picks up his wages after PAYEE, and uses that on his living expenses.
Peter Rort. picks up his wages, spends his on living expenses, then pays taxes on what is left, if any...after that $1000 bottle wine insuring his Ferrari and paying his rates and mortgage.

That is the tax system we have now...if that is not considered fair...thats is what needs changing, not another bandaid that has taken a fair system like that and complicated and distorted it beyond reconition

Up
0

Never had a business have you, how would you justify a $1000 bottle of wine as a business expense, thats tax evasion, limited return for hitting the criminal code. If you entertinment expenditure is out of line with benchmarks for the industry will get an IRD tax audit then you are all found out.

Up
0

What a brilliant idea, sensational article and wonderful reading. Great job Bernard. I'm all for it but have an alternative suggestion: No income tax and higher GST. Everybody (including businesses) pay GST on any purchases.

Then the tax any individual pays is totally discretionary. If you don't spend - you don't pay tax. If you spend up big time, you pay more GST.

How about that? I'm sure its far too simplistic but not only is it transparent it's up to the individual what they pay.

 

Up
0

Interesting idea, but the GST rate required to make this work would cause an enormous black market..

Up
0

Wow! I like it. Would this not also make avoidance near impossible unless you wanted to live in a cave?

Also, you would have to remove 'cash' from the market! I might grow some veges and sell them too you minus any GST to pay? I know that happens now but it would happen alot more don't you reckon?

 

Don't petrol levies work on this principle? Making it very differcult to avoid if you want a car

Lets call it "consumer gains tax" CGT

Up
0

hmmmm cash transactions no GST and people older who have assets yet limited cashflow have to canabilise them to pay CGT, how equitable...............

Up
0

I don't get the headline with respect to a "solution for tax avoidance". 

Tax avoidance (or tax minimisation as you rightly refer to it) is LEGAL.  So why should anyone be ashamed of structuring their financial affairs in a perfectly LEGAL way?

If we don't want tax avoidance because we need to raise more tax - then we have to make these mechanisms of avoidance ILLEGAL.

Simple really. 

We've already managed to structure our tax laws for those folks in NZ with low wages and no assets in a manner that offers them no means of "tax minimisation" (i.e. PAYE, GST and Excise taxes).  Therefore, if there was a will, our politicians could do the same for higher income brackets, the self-employed and those with substantial assets.  All we need to do is change the tax structures. 

Take property rates for example - unavoidable.

 

 

Up
0

Your right Kate. The focus should be on illegal tax avoidance and focus & changes to tax laws surrounding the legal loopholes that exist now that our gutless government fools don't have the balls to deal with. Lets hit the "breadliners" first is their only answer as always

Up
0

Yep.  I could never understand the rationale behind, for example, "limited liability" companies.  The whole structure seems to be targeted at ensuring that unsecured creditors get screwed in the event the business owner stuffs up - and there is no real penalty to the business owner who closes up the business owing money to a bunch of unsecured creditors.  As long as he/she liquidates the company legally - they can retain all their personal and other business assets without any legal or financial repercussions.

In general, I find most of the business, tax and financial rules in this country have been developed around the "little guy loses" every time.

Up
0

This is why i have 'cash' accounts with all my suppliers. I pay in full the day i purchase. Only fair and then everyone knows where they are at. None of this 'pay on the 20th' BS

You buy? YOU pay!

Up
0

ahhh the debate is actually getting somewhere!!!!!!!!!!

Up
0

Under receivership law there is a two year claw back, voidable transactions, so due care has to be taken and self interest by Directors, if enforced, can be kept in check for the benefit of the creditors.

You talk about stuff ups in business..however in business there is risk, like in life, that cannot always be managed away...without the company structure people would not undertake it.

Enterprise would not happen. Guess not a lot of that happens in this country so people are not aware of real business.

The law is very risk adverse in the business environment however so are the regulators to apply the law they have.

 

Finished my report, thanks for the thread, made for a good distration, good nite.

 

 

 

Up
0

How about a GST on the sale of a property, any part that's above $500,000 in the case of individuals, and the whole lot if its in the name of a trust or company.

Up
0

I'll vote for that! Something like this IS needed . It's called 'hitting the button' Nice

Up
0

My understanding is that all properties are sold inc GST, unless otherwise stated in the Sale and Purchase agreement.  If the property is purchased by a business, then the GST component on the sale can be claimed.

Up
0

When did "second hand" goods and pre-owned property become liable for GST? Were exempt originally. A brand-new house would include GST on all the materials in it.

Up
0

If it is a going concern...zero rated

Up
0

If it is a going concern...zero rated

Up
0

FYI from a reader via email

Hi Bernard, excellent article of the unintended consequences of Labour's screw the high earner policy. But if we are to publish who pays what, then you might find calls to award extra votes pro rata tax paid? That would stir things up!
On another note, have you ever wondered what the unintended consequences are for NZ borrowing 100% NZ$'s instead of a trade related basket of currencies? I think you'd find a big story there, especially who gets the main chunk of deals borrowing NZ$'s for the Reserve Bank, and what steps are in place to stop parties from a little profitable front running of the book?
Regards

Up
0

FYI from a reader via email:

As usual, your Sunday Herald item was thought provoking.  Your comments about Norway prompted this response. It is possible to see how much New Zealand income tax that companies pay.  It is shown as a credit to their Imputation Credit Accounts. Telecom's tax was less than $500,000.  Fonterra's was the same.  Neither fact got any mention in any media outlet.  I am unsure whether New Zealanders would be interested in the Norwegian style of openess. .............................................................

Perhaps, in due course you will give some credit to the National Party's attempt to restore some decency to the Working For Families tax credt definition of income.  The new changed rules come into effect on 1st April 2011.  In the past, as a provincial town bean counter, I have seen my rather wealthy clients benefit through the judicious, and entirely legal, use of trust structures to;     (a)    Increase their Working For Families entitlement.     (b)    Reduce their family's student loan repayments.     (c)    Minimise their ACC expenses.     (d)    Take advantage of what is becoming an increasingly graduated tax scale.     (e)    Reduce their top tax rate to 28% because of their family's company structure, even though their income exceeds $400,000 per year.     (f)    Maximise their childrens' Student Allowances.     (g)    Minimise their liability for Child Support.     (h)    Improve their entitlement to a Community services card.

Up
0

very telling and unfortunately almost too late as the damage has really been done. Not enough productivity to bring things right quick enough now so.........our ship will sink along with USS TOTALLY SCREWED. May my trip there in April be worthy!

Up
0

All based on an artifically low income for effort in businesses which is covered by the anti-avoidance provisions, the IRD has only contested a small number of cases, you need to ask why. They have all the provisons they require to overturn most of the cases provided and the ones they did not the power is now coming into effect.

Up
0

yeah really a socialist agrument fighting over the ever decreasing pie.

Up
0

What is the biggest single industry in NZ? Based on 100,000 private dwellings changing hands annually, excluding commercial buildings and assuming (for the sake of the argument) an average price of $500,000 the total turnover is $50,000,000,000 or $50,000 million, or $50 billion and its hardly touched tax wise.

Up
0

And it won't be unless there is no substantial tax take left, look at the debt position on these properties, be it for home or investment, the cashflow an't there in peoples finacial positions. I think there should be a tax on increase in value of trading stock even if that is investment properties but also a loss if values fall.   However people position have be predetermined on the previous bad legislation. Only the the truely wealthy/financial independent could currently raise the cashflow to pay a CGT. The wealth effect on the economy would be severe and the potential for the economy would fall with it. Canabilise yourself does not make for a positive future.

Up
0

Everyone who earns over $Xk pays a minimum of y% income tax, irrespective of deductibles.

No exceptions

How about that?

Up
0

If we are all going to have our income details published then surely all those on benefits should also have their name published on a separate list so we can see who is subsidising who.  

Perhaps many of us avoid tax for a reason - to prevent the productive from propping up the unproductive. 

 

Up
0

Relax  ! ...... The likelihood of a Greens , Jim Anderton & Bernard Hickey coalition ever having the balance of political power in NZ is even remoter than our cricket team ever winning a trophy . There will be no public display of your personal  financial dealings ...

.... Bernard Whimp and the Harris gang won't find you so easily , after all .

Up
0

Gummy's fallen out of his hammock...scratch yawn....hard day at the beach today Gummy?

Up
0

Yup ,  scratch  me pili nuts , grab the wife's mangos , and into the fray ! The boys are here for a BBQ . A tea party later for the girls . And us fellows off to Uncle Charlie's wake . He's not awake , anymore .

........ tough life .

Tried to teach the guys rugby , with a genuine Super 12 Gilbert ball . But shag , the tropics are no place for footy .............

Up
0

We're All In This Together

For those that are slamming beneficiaries, particularly single mothers, let me give you a scenario where transperency would reduce your taxes.

Currently, if the father of the children is self employed and earns say over $200,000 per annum but only ' owns the clothes he stands up in', declares less than say $45,000 per annum and has the rest channeled through trusts,  split income,  leases to trust assets and many and various other creative ways......well, the father can pay as low as $20  per week per child, give or take. 

Now if the mother lost her income (because she worked in the family business, which is often the case in these situations), and now has say 2 or 3 children at primary school, its likely that she could only earn less than $30,000 because she needs and wants to be home for her children after school. Its also likely that it will be hard for her to get such a job, as they are highly sought after.  Therefore she probably will decide to register for the DPB at least until the children are through the worst of the divorce and a little older.  And all the while keeping her eyes open for a well paid job where the hours would work for her family. 

If the father could not hide his income he would be contributing for two children, lets say about $400 per week.  She would not then need to register on the dpb, and could top this up with say 10 hours a week work.  The children would still have time to be the sort of mother, hopefully the father always intended for his children.  She foregoes a career for the time being, he pays a fair amount for their upbringing, the tax payer does not have to pay. 

The only current option for such a mother, whose ex hides their income is a one on one interview with the ird tax lawyers.  These are confidential and the outcomes are not able to be published.  My guess, given what I know, would be that only maybe 1 in 30 females would apply for a review. This is because firstly they are often scared of the whole process, intimidated by their ex partners and worried about the repercussions........

One can only guess at the millions, and I would say it would be millions, of tax dollars that go into providing for such solo mothers, when the rich dads pay tax on less than $45,000.  These dads not only avoid tax, but they avoid child support.  

 

Of course not all solo mothers give up work, some try to make it out there, while also bringing up a family, its no easy road working 40hrs coming home and then working another 5 hours or so until you drop into bed exhausted.  They have a choice, just keep taking the $20 per week from their ex, who is ' formula assessed'  or apply for a review.  Chances are the rabbit warren is so vast and mind boggling that at best the IRD will see a tip of the iceberg (the process is not investigatory).  Therefore a court hearing with full disclosure of accounts is then the only option.  This costs at least $25,000 in lawyers fees.

And all the while the dad is paying $20 a week.

Transperency?  Bring it on.  There are too many ' hiding places'  and the children of this country are suffering as well as the taxpayer. 

 

Let's see what Peter Dunne does with this can of worms before the election.  Methinks there are too many powerful people with trusts.  They say NZ is one of the least corrupt countries in the world.  I beg to differ.  We just do it in a very British way.

 

Stella.

 

 

 

Up
0

Stella...why not open a website to expose those who are rorting the system and leaving the costs to taxpayers....surely it is possible. Name and shame the bastards.

Up
0

Well i can only comment on how unfair i see things from my own experience. im probably wrong but here goes. And you may have all heard this before so i apologise if its boring.

1) Cheaper/starter properties taken from the marketplace for rentals that should have been for the first home buyers out there. This is un-natural and has distorted prices.

2) tax avoidance - why should single persons and non-children couples pay proportionately more tax than their friends and family with children? That's discrimination.

I dont want to seem to point the finger at anyone but i really do wonder what the heck Labour was doing when this was all happening?? I really dont understand this.

There hasnt been one time Ive been asked in my life this statement.

"Oh you are single or dont have kids! .. thanks so much for everything you have done ... im so grateful here take my place in the queue"

Thats my 2 cents anyway

Up
0

i really do wonder what the heck Labour was doing when this was all happening??  

Getting re-elected.

As Bernard says in the poll, "a pox on both their houses".

:-)

Up
0

FYI from a reader

 

Bernard, I heard you’re comments with Marcus Lush this morning. It horrifies me to think that this happy friendly community that is New Zealand has a dreadful class structure (financially speaking) as bad as my Regally backed homeland.

 

Utterly agree with what you feel. It’s simply not on that some should drink from the cup and yet contribute less than those in greater need.

 

Good on you and keep at it. Fair is fair and is more aligned with the New Zealand I thought I’d moved to.

 

I don’t even want to consider how rife the UK is!!

 

I’m all for transparency.

 

Cheers

 

Up
0