By Bernard Hickey
Avoiding and minimising tax is almost a national sport in New Zealand. There has been a grudging admiration for those who can get away with sticking it to Te Tari Taake.
Among the more professional and entrepreneurial classes it is seen as par for the course to shelter assets and income in family trusts and company structures that help reduce or avoid tax altogether.
Many of the multi-national companies operating in New Zealand funnel income, assets and debt through various tax havens and vehicles that keep tax paid here to a minimum.
Most of our politicians, city councilors, bankers, accountants and judges use such family trusts and vehicles personally to protect their assets from the prying eyes and bank balances of the Inland Revenue Department, creditors, ex-spouses and ultimately, the courts. New Zealand now has up to 400,000 family trusts.
It means the bankrupted, the convicted, the disbarred and the divorced can stay living in their mansions and driving their flash cars even though they are personally penniless. It means those that stay out of the courts can live freely as part of society, but don't pay their fair share.
It means international companies can out-compete, grow and suck capital out of New Zealand with apparent impunity.
It means the vast majority of taxes are paid by the mugs on PAYE and by those who have to pay GST for their goods and services.
The policy making classes believe this dual tax system will not change because they run it.
But the game is coming to an end and it must if New Zealand Inc is to have any chance of balancing its books and avoiding national bankruptcy.
Anyone looking for a sneak preview of the public pressure to crack down on tax cheats just needs to look to Britain, America and Europe. The public mood is turning feral and the powers-that-be are responding, as much because they are being forced to by their creditors.
The best example is in the UK where a grass-roots campaign called UK Uncut has grown up out of anger at public service cuts and is boycotting and protesting at individuals and companies seen to be avoiding tax. Billionaire shop keeper Sir Philip Green channels his wealth and income through various havens and his Topshop and BHS chains have been targeted by placard waving protesters that have shut stores.
Vodafone and supermarket chain Tesco also face protests for minimising their taxes through various structures.
The British and American governments, both of whom are running budget deficits of around 10% of GDP, are also cracking down on tax havens. This week Britain and Switzerland agreed to charge a 50% levy on assets hidden in Switzerland.
Google does some evil
International pressure is growing on those countries such as Ireland that are seen to be trying to 'beggar thy neighbour' by offering low tax rates or tax havens. Companies such as Google that channel their GST-free revenues from the 'cloud' and through low-tax vehicles in Ireland are now facing growing scrutiny.
So what are the policy-makers in New Zealand doing?
Our government is about to quietly drop its tax on gifting assets into family trusts, which is expected to unleash a wave of transference of assets into these trusts. This week our government agreed to try to set up a tax haven for the administration of pension funds.
This is unsustainable, in part because foreign governments will not allow it and in part because our creditors will not allow it.
It should also be unsustainable because consumers and voters eventually won't allow a large and wealthy swathe of New Zealand to avoid their responsibilities.
How long before an increasingly desperate body of PAYE taxpayers and GST-paying consumers tell their politicians and companies they have had enough?
Or do we have to wait for our creditors to force us to slash public services and wages and sell assets? That's what happened in Ireland and Greece, both of which have deeply ingrained cultures of tax avoidance and both of which ran budget deficits of more than 10% of GDP.
This week our government announced it would borrow 10% of GDP this year to fund its deficit, mostly from foreign creditors.
What are we waiting for?
Peter Dunne interview
PS: I have attached an interview I did with Revenue Minister Peter Dunne above to get a flavour of the sort of tax avoidance going on and what the government is doing or not doing about it.
Dunne mentions plans in the budget to crack down on students living overseas who haven't paid their debts. Initial trials in Australia had recovered a couple of million dollars, he said.
The government will also announce later in the year changes to the child support system to encourage non-payers to pay early and to force the IRD to attach orders to non-payers' bank accounts. He said the government wasn't considering such 'attachments' for other debts owed to governments.
"The whole issue of crown debt and how it is made up is on the agenda," Dunne said.
About NZ$2 billion is owed in child support and interest on non-payments, Dunne said.
82 Comments
Businessweek has done a major expose on the tax fraud industry in the US - the wealthy find it very easy to pay minimal taxes.
http://www.businessweek.com/magazine/toc/11_16/B4224no_taxes.htm
This is the group for which in NZ Roger Kerr wants to have taxes reduced! - # 8
Cheers to all
Putting Dunne up to comment on this type of rort is a waste of space.
Companies like Google that operate in the ether should be taxed on their perceived turnover and then have to prove they are not liable. As a country we must be doing very poorly out of Double Taxation agreements also. Therefore time for more tax on assets which sit outside the double tax net.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10723910
Changes to the Government's business migration scheme will make it easier for rich foreign investors to qualify as investor migrants.
These include a reduction in the number of days a $10 million investor has to spend in the country from 73 to 44 days, and recognising investments in bank bonds and equity,
"Asian investors, especially the Chinese, are happy and comfortable to be investing in residential properties," said Ming Tiang, a licensed immigration adviser from Chiwi Immigration Services.
This also looks like another hole in the tax system!
Re: Child Support.
This response is the latest received from the IRD, re an on-going 5 year battle to resolve the problem. Any wonder the 'rules' are used to such great effect, and so easily!
"When a paying person is bankrupt, they must apply for another IRD number. Any debt that accrued under the old IRD number will remain in place until they are cleared. They can only be cleared through a voluntary uplift by yourself."
I agree that tax avoidance is a national pastime but I think the cash economy is where a large proportion of tax dodging goes on. All those trades doing perks, small businesses pocketing cash and inflating business expenses. People never seem to think they are ripping the country off by these so called small dodges but they are crooks! And they are always the first to line up and demand WFF or student allowances. I really think you are overblowing the trust thing Bernard. Many trusts are legitimate business entities and properly run and there is no tax advantage now that the top tax rate is aligned. The govt just need to tighten disclosure rules and enforce the current rules more closely. They also need to be given the means to look through trusts before allocating any income tested benefits. Trustafarians should not be receiving WFF etc.
fyi from a reader via email:
Hello Bernard I continue to hear a statement that "10% of New Zealanders are paying 90% of the tax" Is this the same 10% that own 90% of New Zealand's assets? Who are they? Is there some form of hidden Plutocracy here? ..........See your latest Blog has got them squawking.................. good luck, mr devil's advocate!FYI via a reader via email:
I liked your article about tax.Also NZ is becoming a resort country.Park you family there send them to School.Medical costs low and Pension at the end of the day.Twenty years ago you couldn't travel and use the internet and run you overseas business.Now you can.I have just spent a couple of years working in Asia.I can see you are just waking up.It is not going to get better.Its going to get worse.
There's going have to be a lot of wage slaves out there or you are just going to whip the ones you have more to keep it all going.
After all if they don't slave away who else is going to do it.
Chinese don't have high Tax or even pay any Tax. That's not there culture.
The backbone Bernard of the System are those wage Slaves,
Fce it you are one of them.You will never retire.
They (the non wage slaves) are going to work you to death.
If you were a Donkey the SPCA would save you. But bad luck if you are a wage slave man.So get back to work.Boy.
Dave
FYI via a reader via email: Hi
Bernard you obviously do not know me but your article hit home with a bang.
It was very interesting, it makes me wonder why people like Don Brash who are so
vehement in their condemnation of this government for borrowing so much money to
shore up this country as to why he does not say it like it actually is.
His
answer of course it to go down the route of selling all this countries assets to
and making sure GST is higher and that the rich pay no taxes and the poor and
middle class pay all the taxes, and yet people still can't see his hidden agenda
which he hides by beating up the Maori's, by using race which of course a lot of
Europeans seem to fall for.
Well thanks for your interesting article. I will
be sure to show friends.
Have good week.
FYI from a reader via email:
Hi Bernard The point you made about NZ tax system, are absoultely real. Ordinary mugs like me are too depressed to express our opinions because the power is with the rich , the famous , the influencials and the greedy. I happen to be working within the tax system . Everyday I see six figure income families claim family assistance of thousands of $, claim losses of thousands of $ against their PAYE income, channel their income from companies to trusts to avoid paying their share. The fact is the tax system in NZ has been designed to do just this and there is no political will to chage it. Do not let any politician to fool you that they will change this. Solutions are very easy crack down hard and name and shame but will not get votes, dontaions and contributions to the polical parties. thanks Your readerFYI from a reader via email:
Your comment in the Herald about tax havens is welcome but a tad too negative because there are good aspects to "family" trusts.
It would be better if a prpper analyses of the issue of family trusts were made and the pain points disclosed. There are obviously also bona-fide users of the structure : it is not all bad.
But good to put the issue under the spotlight. Thanks,
FYI from a reader via email:
Hello Bernard, I wonder if following your article on corporate tax avoidance, it might not be better to charge a business profits tax (variously named worldwide) based on sales in that country. My own experience is that corporates in some countries will work their socks off to avoid paying tax and this can work in various formats, even to creating year end management charges between their various international subsidiaries in order to reduce local profits subject to tax. I've had to walk out of one meeting in the mid-1990s when company auditors and the MD were openly discussing how to respond to a Tax Authority enquiry (ie what not to say in reply) so as not to risk disturbing a rather sensitive stock pricing arrangement with overseas partners. That to me at the time was more about tax evasion than tax planning and thus potentially illegal. That same big name international firm of accountants was to collapse in a major credibility scandal some years later. Whilst corporate tax remains based upon net profits, there will always be the opportunity to manipulate the amount subject to profts tax, by one means or another. In highlighting the UK (you might also care to look towards Italy, a country perhaps more obsessed than any at avoiding tax ) , you mention Tesco. Tesco will have filed VAT (GST) Returns declaring turnover and could easily be taxed on those same sales as a UK taxable profit, rather than its declared Year End Net Profit, which may have been "adjusted" for all manner of charges along the way. "But everyone has a different operating structure" is the obvious call. Agreed, but food retailers such as Tesco, or clothes retailers etc., will have a trend in sales mix and net margins which can be considered in creating "personalised tax structures". By capturing higher profits taxes from the sales of the big companies, you might create a scenario whereby much smaller businesses pay minimal tax in the early days in order to encourage growth. I'd suggest that such as the UK's Revenue and Customs have more than sufficient corporate trading data to hand to be able to create a regime whereby profits tax is tailored to the sales and trading style of business rather than a potentially manipulated net profits declaration. Unless you manipulate your sales declarations (which is in effect fraud), then this surely is as near a fixed figure to work on rather than a highly debatable Net Profit before Tax declaration ? So in effect eliminating in some form the need for corporates to spend weeks and £/$ millions in calculating how best to manipulate Year End Profits declarations by working the profits tax charge based upon an undeniable in-country statistic such as turnover ? That extra tax take from big corporates might just help reduce the tax impact on business startups and small business as they grow (say first 3-5 years). Indeed, you might even provide more support benefits for startups. One major flaw; that such a tax system based on sales might discourage big business from trading in that country, unless of course there was international agreement on the policy. A second flaw (?): many of these big businesses also make political donations and which Govt. will risk alienating such useful financial support ? It may be an irony across the world that so many major businesses highlight their good works and charitable foundations to help the needy, and yet spend huge sums devising methods to keep corporate taxes to an absolute minimum. Whatever the answer, tax law will always remain highly complex to operate and the wealthy will always be able to pay others to keep their taxes low and potentially open to suspicion. No easy solution, is there ? RegardsRobert
I'm all in favour of tax avoidance, and people who do it have my full support. The reason I support it is because our governments expenditure has grown so disproportionately large in size relative to our economy that it is holding us back and serioulsy constraining our growth. If you are looking for an elephant in the room, this is it.
Our behemoth of a Government takes (taxes) a staggering $60billion dollars a year from our collective productivity and wealth, (and borrows another $10billion or so on top of that). Our government produces nothing, it is a giant consumer and burden we cannot afford.
If our govt expenditure was half or less of what it was today then taxes could also half. If our tax was at say %15 or so, then there would be no incentive to avoid tax in the first place.
Bernard, sorry I don't agree with your article. Treat the cause (Govt expenditure) not the symptoms.
Can you tell us how the government can cut its costs in half? Here is where the govt spent its money in 2010: http://www.treasury.govt.nz/government/financialstatements/yearend/jun1…
Jimbo, I'd say that there are a large number of people living here that have a far lower quality of life than in Singapore. NZ has a high rate of poverty, related sicknesses, violence, drug and alchohol abuse, crime, vandalism, delinquincy etc etc. Domestic violence here is extremely high. Our level of poverty is not as "visible" because the welfare state pushes it indoors where its not seen by the general public.
One one level we choose to supply public services like education and health, these are significant parts of govn expenditure...these we have decided to provide as a society.
On the other level, further when you look at Govn expenditure in these areas and then compare to a system with less public services but where the voter then provides them out of his or her own pocket we see that costs to the voter is double, ie health and education and actually doesnt cover everyone because some ppl canta fford cover.....so the total effect / drag on an economy should be considered and not just the Govn expenditure side...
When you compare apples with apples, the money is still spent its a Q of how its spent....the bottom line is the effect on GDP figure is worse because the voters are being forced to spend double the money to cover themselves for essentials at monopolitsic prices this makes no sense from an economic perspective.
Some great examples are the USA where medical insurnace is climbing at an un-affordable level.... sure we can slash Govn expenditure, simply not provide it via the Govn aka the USA where ppl dont like it....and even companies dont like it because they have to offer healthcare as part of the employment package which is very expensive and un-controlled....and especially small businesses dont liek it because offering such packages cripple them financially........
regards
I have no problem with the provision of some public services, but I would question how efficiently they are being provided? In other areas I would question whether these could be better provided by the private sector, or cut altogether.
I also have my concerns over providing open ended welfare beyond a short term safety net for unemployment. I cannot see evidence that the overendulgence in socialism has produced a 'healthy' society in NZ, in fact the opposite IMO.
In the area of health and education, there has already been much public discussion about the beauracracy, and administration costs are now disproportunate to the cost of providing the actual service. That is a clear sign that its become too cumbersome and costly.
The debate needs to be about what percentage of GDP is a reasonable overhead to fund public services? I believe that its too high at the current levels.
FYI from a reader via email:
Hi Bernard
Last time I looked, i was paying 33% tax on every dollar of income derived from my family trust. It's a stretch to call that tax avoidance.
I can assure you that it's not just those who pay PAYE who pay taxes. As a small business owner with fourteen staff, I have paid millions in company tax over the years, as well as creating employment and export related wealth which benefits all New Zealanders.
When the Government tax take starts to head north of 40% of all earnings then the problem is not those who seek to minimize their tax exposure, but a population that has become accustomed to the Government doing everything for them, and morally bankrupt politicians who encourage State dependency in order to retain office.
We transitioned from a nation of pioneers to a nation of dependents in the space of 150 years.
Or to put it another way, from citizenship to slavery.
My observation is that most socialist academics can only look for new ways to redistribute the nations diminishing wealth. They have no idea how to create wealth or to encourage entrepreneurship. Sadly it's these people whom the main stream media turn to for economic analysis most of the time.
I suspect that you are not in that camp, but your article reflects their views.
Kind regards
Brendan
Brendan,
Many thanks for your reply.
I agree the family trust rate is 33% and now the same as the top personal tax rate. But it wasn't always that way and we now have 400,000 of these things being used by most (let's face it) to reduce tax.
The bigger issue now is the way foreign companies here avoid tax and punish the likes of you and your fellow kiwi small business owners by out-competing you with low prices.
I'm not arguing for bigger government. But when you're running a budget deficit approaching 10% of GDP you have to cut spending AND increase taxes.
cheers
Bernard
Well put Bernard. I don't see why there would be 400,000 trusts in NZ if there were no advantages to trusts!! I also don't buy Dunnes argument on gift duty - if everyone had their assets in trusts, it will be very difficult to asset test them. Yes the govt depts might have powers to do it, but what will be the cost to do it to pretty much everyone?
But there is a moral obligation to contribute to society, ie paying taxes to provide services that you expect to receive.
This is where the PI's (which is the majority IMHO) that are only in it for the tax advantages are morally corrupt. You expect to receive education/healthcare/law and order/superannution etc, but don't think you should have to pay for it.
FYI Brendan replies: Hi Bernard
Increase taxes and you will double the present outflow of talented young Kiwis to Australia, and then where will we be? The exodus is already at alarming levels and has been for many years now. On a personal level, I have two children plus grand children living in Sydney, and doing very well thank you. I have had a guts full of politicians and social commentators who think we can redistribute our way to prosperity, or that we can build a prosperous cohesive community through wealth transfer from those who create wealth to those who don't but expect to enjoy its benefits. Sure, go ahead and argue for more taxes, there are plenty who will agree with you. Those of us who have become wealthy through a process of work, risk and reward, will simply work harder to minimize our exposure. We must have a dozen redundant Government departments like Women's Affairs, Ministry of Culture, (what on earth do they do), Youth Affairs, Families commission, plus other totally useless quangos that could all disappear overnight and no one outside Wellington would notice. No one. We can no longer afford this nonsense from our political leaders. We provide financial incentives for teenage girls to become single mothers and live in State funded poverty, and then increase the payments if they stay single and have more children. We would rather pay youth with no skills to rot on the dole, than have them work at a minimum wage employers can afford and provide some training. We refuse to make drug testing a condition of receiving unemployment or sickness benefits, yet in the far north, the place of highest unemployment, I have customers who cannot find someone who will take a voluntary drug test in order to gain employment to operate machinery in their factory. We refuse to means test Supper-annuation or increase the age of entitlement. We lament low savings levels but tax away any incentive to save. We fail to differentiate between virtue and vice, and reward both equally through 'entitlement' welfare. We behave in ways that are terminally stupid, and expect to receive positive outcomes. The problem Bernard is not how much tax we are paying, it's how stupidly we are behaving. Increasing the tax rate without fixing the stupidity will ultimately end in calls for more tax increases. Let's put our energies into making New Zealand a 'stupidity free zone' and then watch the economic turn around. Kind regards Brendan
Brendan
Many thanks for your many good points.
You're right about much of the over spending by government.
The real problem is that most of it is in health, social welfare (mostly pensions) and education.
None of your suggestions cut those, except for maybe the extension of the retirement age and means testing.
At some stage we will have to increase tax rates and aggressively prosecute those who don't pay their fair share.
Or radically re engineer the state.
cheers
Bernard
FYI Brendan responds:
Hi Bernard
I'm for a radical re engineer of the State, but in a humane way with plenty of notice given over time. The biggest change would be to move from a 'State centric' view of welfare to a 'Family centric' view. This would address your budget concerns, and my issues over 'stupidity' and build a stronger society. Without extending this conversation unduly: The benefits of family centric welfare over a State centric system are considerable.1) It provides a real incentive for parents to instill personal responsibility into the lives of their children, as they know that one day they will be dependent upon them.
2) It encourages children towards respect and obedience for their parents, as there is no support for them outside the extended family.
3) It encourages parents to educate their children so that they may have a better future.
4) It models personal sacrifice, and intergenerational deferred gratification along with family wealth generation.
5) It encourages workers and employers to save and provision for the future difficulties of life, and also to insure against them. In short, it produces a saving culture rather than a spending culture.
6) It acknowledges the place of family as the basic building block of culture, and seeks to affirm and strengthen families.
In short, family centric welfare encourages virtuous behavior on behalf of both parents and children, even if it is based primarily upon self interest. Furthermore it is self regulating - Parents ensure that their children who enter the work force take out the appropriate insurance, as they don't want them to become dependent upon the family in the event of accident or sickness or redundancy.
It also proscribes virtuous behavior for politicians who are unable to treat a growing welfare class as a pool of potential voters to be 'purchased' with further benefits.
Now there will always be exceptions - people who fall through the cracks, those who either have no family, or whose extended family is so dysfunctional that they cannot provide the care and protection that children deserve. In this case in the first instance, I would think that mediating institutions like the church, or other social agencies should be the first port of call.
Also, in this scenario, adults will have taken insurance against unemployment, or sickness or accident rending them incapable of employment.
This would be affordable because of the reduction in taxation, and the waste and outright fraud that is presently endemic in the current model.
I would accept that the State has a role as a place of last resort, but only when it can be demonstrated that someone is beyond the reach of family and other mediating institutions. No moral judgement is required in this instance on behalf of the State. Just the above test.
Bernard, the present welfare system contains within it the seeds of its own destruction. Welfare has become the problem it was designed to solve. It was designed for a 1930's 'virtuous society' where 99.9% of the population did not want to bludge off their mates.
That New Zealand no longer exists.
My prediction is that we will either voluntarily default to family centric welfare, or it will be forced upon us by simple economics. I hope for the former, I expect the latter. Kind regards Brendan
I like the idea of lifting the retirement age. In my opinion, if you are physically able to work, but instead you are recieving a weekly payout from the govt, then you are as much of a bludger as someone on the dole. If you want to retire at 65 even if you are physically fit, then save the money to do so, don't rely on me to pay your way.
I would lift the retirement age to 70 over a span of 10 years (you can get the sickness benefit until then if you are incapable of working), but leave the Kiwisaver payout at 65 so those that want to retire early can do so by saving. I'm sure that would encourage the savings that Bill and John are so worried about...
I like this approach too(raise the retirement age)...
I am thinking that this whole chain tells a story of greed and deception. I must be too honest. I fear IRD - I loose sleep until I am sure I have well tested honest audit trails for every transaction within my small businesses. (Two rentals and income from being a musician) New Zealand economy is so small it does not sustain being able to make a modest liviing at either so I work and PAYE as well. That is why people try and dodge tax that the government is genuinely entitled too,,,,Unfortunatley the tax burocracy is murderous for small business in New Zealand.
If the large overseas companies want to do business with NZers then the money they make off us should be well taxed by government before it leaves our shores. This may help the government to afford to support small enterprise to employ NZers and raise the living standards for NZers through work. People are happy to pay tax if:
-the government uses it well (I have yet to see that)
-Tax on individuals is fair (Flat Tax rate) - I dont call "fair" taxing someone earning a higher income a higher rate...that is biased taxation. Because someone earns more means that their flat rate protion IS more. (We should not penalise for working harder or being smarter using high earner tax brackets)
Salaries and wages are paid in proportional to margin and revenue of the business (determines market rates on products and services) and likely outcome is better Salaries and wages according to real product value. Inflation might stabalise eventually.
IMO,,, :-)
I have a few suggestions.
1. Radical review of health delivery. Rather than have wide specialities we could train technicians at a far lower cost to perform specialised functions. Cataract operations come to mind. My health insurer indicates that a cataract removal costs $3500 to $4000 in New Zealand yet the Fred Hollows Foundation tells me a $25 donation can help fund a 20-minute cataract surgery that will restore sight. Why the disparity?
2. Stop NZQA playing around with reviewing the qualifications framework every five minutes. So much of their tinkering looks very much like wasteful busy work. Educators have to reinvent resources every time standards are updated. A lack of lead in notice means there is a lot of duplication of effort as there is no time for the development of national resources. Educators end up having to divert resources from front line teaching to up to date with NZQA changes.
3. Encourage diversity in the education sector by allowing suitably expert people who are not teachers to be engaged in the education system on a part time or full time basis - for example retired people, stay at home parents, students all have skills that can be passed on to the next generation. They should not have to be qualified teachers in order to make a contribution. Working in a school could be part of a career path rather than the be all and end all it has become.
4. Pay superannuation on the basis of need not age. I can see the benefit of increasing the age of eligibility but see the possibility of great hardship to those who work in minimum wage manual employment as their bodies will not be up to continuing to work beyond 65.
5.Provide incentives and support for couples with children to remain committed to their relationship rather than having the easy back up of the DPB to enable them to walk away as soon as the going gets a bit tough. Child support needs to reflect the true cost of supporting a child and should be rigorously collected.
4. Pay superannuation on the basis of need not age. I can see the benefit of increasing the age of eligibility but see the possibility of great hardship to those who work in minimum wage manual employment as their bodies will not be up to continuing to work beyond 65.
5.Provide incentives and support for couples with children to remain committed to their relationship rather than having the easy back up of the DPB to enable them to walk away as soon as the going gets a bit tough. Child support needs to reflect the true cost of supporting a child and should be rigorously collected.
I think a bit of education on where the govt gets and spends its money would make a big difference. Maybe a letter each year stating the amount of tax collected (broken down into PAYE, company tax, GST, etc), where the money was spent (broken down into govt depts and even down to unemployment benefit, sickness benefit, nz super, etc), and the size of the surplus/defict would really change peoples perceptions of the govt.
I have heard a lot of people pretty much bragging about how much tax they don't pay, and their argument is always that they don't think they should pay tax just so some dole bludger can get his dole cheque. Maybe if they knew just how little tax is spent on the dole compared to health, education, super, etc they might change their tune a little...
Bernard an interesting slant you are taking on Tax. I agree completely regarding corporate tax shelters including GE (owners of CNBC) and Microsoft etc.
Your comments about people using trusts are rather different. The majority of Trusts are genuine and are not used for the purposes you discuss.
Secondly the percentage of tax actually paid by different revenue earners is a point of contention.
WFF actually is a rebate on tax paid by middle class NZers and means that the net tax paid by families earning up to 50 k with two dependents is zero. The excesses of services provided by the government to middle NZ means there is less revenue available to lift the truely needy out of poverty and causes the wealthy who have the means to avoid paying tax where possible. A classic chicken and egg situation.
Tax rates under the current system are higher for all than they need to be under an economy that is not burdened by the level of redistribution to middle classes that we have in NZ.
The fact that we are borrowing every cent to pay for this largesse makes it comical .
Unfortunately like all addictions you have to get to rock bottem before you see the light.
You're right Jimbo it must be tough, but you'll find that a family with 2 kids earning $50k will get extra assistance from WINZ as well.
A family in this situation will be using their fair share of govt. services though (healthcare/education etc) - why should they not contribute to some of that?
Why should families earning $70k, $80k, $90k, $100k, $120k require handouts just because they have children - shouldn't they also be contributing to the cost of the services they receive?
What's the best way to help people though - give them handouts or help them to help themselves?
The reality is that the gap between the rich and poor is only getting bigger. The only way I can see to bridge the gap is to tax the rich and give to the poor. Do you have any better ideas?
I think it is wrong that I earn 4 times as much for an hours work as someone on the minimum wage, and on top of that my job is probably a lot nicer than theirs is. I don't mind paying a bit extra in tax if it means a family can live in conditions above the poverty line.
The best way to help people is to create high wage employment opportunities (and that would be done by encouraging businesses/entrepreneurship). So long as NZ has a 1st world COL coupled with 3rd world wages, families will struggle.
Unfortunately, WFF addresses the consequences, not the causes, of the daily "make ends meet" struggle that a good chunk of NZers face.
so a family earning less than 50k try to raise 2 kids, and "struggling even with WFF"
shouldn't they focus on job training, better income, and proper budgeting first?
What kind of signals is WFF sending out? A family on 40k single income with 5 kids equal to family on ~70k single income and no kids. 2 parents working fulltime on $13/h with 5 kids equal to family earning combined ~100k with 2 kids - or even higher if government cut off "rich pricks" on WFF list. it looks as if raising more kids are better n quicker than pay rises.
Bad example - if Vodafone wasn't here there would be another mobile phone operator in their place, maybe even one paying tax...
You only pay tax if you are profitable. I don't think any of those very profitable companies you speak of wouldn't be here if they were made to pay tax.
A similar proposition was put forward not so long ago in respect of MacDonalds. At issue were the royalties paid by MacDonalds NZ to MacDonalds US. The counter-argument was the number of jobs created employing all those young people. The problem is the local NZ based MacDonalds are New Zealand owned franchisees doing all the employing. The question is - how much tax is MacDonalds US (who arent employing NZers) paying on the royalties extracted out of NZ.
Oh Really. MacDonalds themselves say "In New Zealand, 80 per cent of our restaurants are owned and operated by local franchisees". See http://mcdonalds.co.nz/about-us/franchisees and your next comment is????
What is time for Bernard....is to address past legislation designed to protect by " intent " from being investigated for " intent" to defraud...avoid....tax obligations.
Those who would involve themselves with ,and pass such legislation should realize that ,by their clear " intent" within the legislation ...they are exposed as probable tax cheats and should themselves be investigated accordingly.
If you protect your asset wealth within the framework provided under the Tax legislation Act you are not in breech of the law because the...intent ...is sanctioned under the law.
No good putting the cart in front of the horse....fix the legislation and one law for all .
Easy Christov, abolish the intent rule and exempt land, property from the default gains tax, because, they'd be taxed via a land/property/capital tax.
And, phase-out fixed rate loans - give the OCR it's mojo back!
And, as for dealing with our debt and money creation:
http://www.huffingtonpost.com/stephen-zarlenga/reducing-us-debt-and-crea_b_857230.html
Cheers, Les.
Lovely sentiments Bernard, but in reality the tax avoidance "gravy train" is now firmly entrenched into NZ society and politics..... anyway there are just too many of those with a "vested interest" in this whole debacle for it to be changed.
These people will just keep pushing the envelope, until the envelope is finally sliced up by the letter opener (IMF) then watch the "gravy train" go flying .... all over the table and onto the laps of the taxpayer !
People are always going to design a tax system that favours them. Key/Dunne/Brash all earn good money and have trusts, so have no interest in changing things. If Hone got to write the tax code it'd favour him too. It's human nature to bend reality to your own situation.
That's why i think the Big Kahuna had so much appeal to non-politicians - it simplified the shit out of tax and welfare. Even though it's a bit of a punt I'd still be prepared to give it a go as it'd have to be better than the current system.
Go, Vanderlei - couldn't agree more. And, think of all the tax accountants and advisors that would be out of work - or would have to refocus their efforts on productive outputs! Gareth made this point to a group of them when presenting his Big Kahuna idea - and apparently there was a great deal of laughter from them because (I assume) they all knew exactly how right he was.
The Big Kahuna addresses our problems with intergenerational welfare dependency as well as legalised tax avoidance in one fell swoop. AND has the added benefit of disestablishing WINZ altogether and dowsizing the IRD by well over half its present size.
AND the government would likely increase its tax take as well.
In my opinion it is the only thing that has the potential to save us from ourselves going forward.
Worth a read, and the comments:
Damien Grant: Trusts industry a costly sham - Business - NZ Herald News
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10724095&ref=rss
He fails to mention two of the (morally reprehensible) benefits of family trusts that remain following the alignment of the two tax rates -
1. Sheltering income such that dependants seeking higher education can qualify for free student allowances.
2. Sheltering assets of the elderly/infirm who seek the State to pay for the care of that family member.
Well that can be easily changed. All students who are beneficiaries of Family Trusts must declare their said interest at the time of their application for a student allowance and they must declare the amount of any income or asset distribution that they have had. If it is beyond a certain limit then they do not qualify for a student allowance. Simple isn’t it? It’s probably like that anyway.
After all that is exactly how WINZ treats income from Trust’s for welfare purposes, or at least it use to and I’m not aware of any changes to the Social Security Act to change that.
There’s no need to make sudden and rash changes to the rules just because some around here have had a rush of highly indignant blood to their watermelon heads!
As for a family trust protecting the family home from a claim by the State to pay for an elderly and sick persons rest home fees, if they should ever need one, and most wont, well good on them I say.
Why should an elderly person who has been responsible and worked hard all their life, paid their taxes, paid the mortgage off, had kids and brought the family up, has being a productive member of society, be forced to pay for their rest home care by the State when the lazy, dysfunctional, welfare bludging Labour party voting give me a hand-out lefty, crapping in the very next room, gets theirs for free? What is fair or morally right about that?
The quickest way to find the tax cheats is just to change the money supply every five years. (Like the change from pounds to dollars)
If the pounds you had under the mattress was not converted within a certain time frame they were valueless. The black market is still rampart in NZ and this provides a very effective method of flushing it out.
Well all this chest beating and posturing is all very well but I don't see any comments here from any international tax practitioners who might actually have a clue as to what is going on...
I've been involved in some complex international tax structures and that was all about avoiding (where possible) withholding taxes at the border when moving dividends and interest payments about. Quite a different kettle of fish compared to what most of you think international tax issues are about.
The issues are not as simple as you all would like them to be, and I suspect most of it would leave you all hopelessly confused and bewildered.
Its not about taxing people harder (i.e. higher rates) it is about taxing them smarter (increasing voluntary compliance). Once you accept that everyone has a big incentive to avoid tax because it is a deadweight loss then things become a lot clearer.
Stop beating your chests and start thinking...
My guess is that you read very few of the threads Horace....so maybe ...stop getting the shitmixer in gear too quickly and start doing some reading ...
P.S. you remind me a lot of a frequent user here by another Name......why the extra ego ..is that for when your angry.....W
Has anyone read Ian Wisharts piece on tax from his Investigate magazine from perhaps 5 years ago.
His point was that income tax is unconstitutional and illegal.
His other point was that you need an IRD number to pay tax, but it isn't mandatory to have an IRD number.
Haha the cynic in me would believe you. Not sure they are that smart, although I think they have always been keen to get young workers into the tax scheme. Notice they don't tell you are not obliged to have one.
You know I can remember being assigned a number to put on my school C art portfolio for assessment, which was before I had ever had a job. That was the same number as my IRD number turned out to be.
The number of the beast:-P
Start thinking seriously about a Land Tax. It will happen because it will work. It works because the government can at little cost or effort:
1. Find the land
2. Value the land
3. Seize the land if the tax is not paid
Such a system is impossible to aviod. It means that there is no concern about any current or future methods of tax planning. The government needs no longer be concerned about the circumstances of who or what owes the tax, only that it is paid. If the land tax is not paid then the land is siezed, who pays it does not matter, A trust, an offshore entity - anything or anyone can make the payment. Just as long as it is paid.It also reduces our current preocupation of taxing 'doing' and wondering why people are less inclined than they should be to do the 'doing' instead it taxes the mere fact of owning.
No no no - We already have excessive land taxes in the name of council rates. Over $2,000 of land taxes for a property with land value of $150,000 in the Far North District Council. Auckland ratepayers don't know how easy they have it!!
The key is to slash Government spending and raise GST to 17.5%.
FYI from a reader via email:
Dear Mr Hickey,
I have been following your site for around a year now and have found it
informative and excellent value. I read many of your incendiary comments
with a keen eye and a grin. However, for me you have just taken several
large backward steps with generalised comments in your article about Family
Trusts with Peter Dunne.
I would take a rather large educated guess that neither of you have been
financially raped by an ex partner (business or spousal) and experienced the
devastating effects it has. Go ask some of your friends who have had this
happen to them, and you'll find one of the main reasons why people have
family trusts. Not to avoid tax, or get into retirement homes, but to ensure
a legacy for their children away from bludging gold diggers and those who
think the world owes them a living. As for Child Tax, well that's a macabre
joke administered by the IRD to avoid having to finance the self same
freeloaders mentioned before from state coffers. I sincerely hope you never
have to go through this emasculating process yourself, as I wouldn't wish it
on my worst enemy.
Feel free to post this on your site, but my sixth sense says you won't.
Regards
Mark
Mark
Many thanks. Fair points.
You're right. I've never been 'financially raped' as you mention.
But I'm keen to get a debate going, particularly around the tax avoidance issue.
I'm sure there are good reasons for trusts and good motives.
But I fear the bad apples have infected the barrell.
cheers
Bernard
PS Sixth sense sometimes wrong...
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