Alex's politico-economic blogroll: Why didn't Labour point to HK & Singapore?; How much tax wealthy households pay; The rich guy who isn't a selfish prick; Cartoons

Alex's politico-economic blogroll: Why didn't Labour point to HK & Singapore?; How much tax wealthy households pay; The rich guy who isn't a selfish prick; Cartoons

Here's my blogroll for the week. And what a week it was. Thank God the capital gains tax announement is out of the way. I was having discussions in my dreams about the pros/cons of the policy.

Bit of a shorter one today as I officially have the day off. Having a lovely sunny time on a dairy farm in the Wairarapa. Have a good weekend all.

Just a thought before we start. In terms of election policies, this is likely to be the 'worst news' from a Labour policy. So get it out of the way now, and in subsequent policy releases, which will include a nice warm savings policy, announce things that people might like better. There's a Rugby World Cup coming anyway, so people are likely to forget about this for those six weeks. 

From the right

1. What about Singapore and Hong Kong? Cactus Kate wonders why Labour didn't include these two countries on their lists of developed countries that did or didn't have capital gains taxes. She also wonders whether we really want to be following the example of some of the other OECD countries.

Problem is that currently many OECD countries are not the envy of the world

- USA
- UK
- Portugal
- Iceland
- Greece
- Ireland
- Spain

Most developed countries have a CGT according to Labour, and there are just two that do not.

And here are two more that do not:

Hong Kong 
Singapore

I suggest Labour do not wish to talk about either jurisdiction. Neither is aspirational for Labour.

Low-tax systems of social order in the centre of the Universe for New Zealand's future exports into China and wider Asia.

2. Taxation politics of envy - Kiwiblog's David Farrar got hold of a table from Finance Minister Bill English's office showing thax paid by households by income brackets, and the overall welfare payments received.

He asks, do the rich really not pay their fair share of tax like Labour says? Now, Labour would hike the top tax rate to 39% for individual taxpayers earning over NZ$150,000, which is 2% of all taxpayers. Households with income over NZ$150,000 make up 9.7% of taxpaying households, according to the figures.

It tells us that overall households with income of $50,000 or below pay no net tax at all. Not only do they pay no net tax, they receive around $4.40 in benefits for every $1 of tax they pay. So they pay $1.7b in tax and receive $7.7b in welfare (and this excludes superannuation).

So that is 44% of households are net tax recipients.  And Labour’s tax policy is geared towards having them become larger recipients. Yes Labour’s tax policy announced in January even includes an increase in the level of benefit payments for all beneficiaries.

Now let us look at the households with income of over $150,000. We don’t know if this is one person earning say $150,000 or two people earning say $80,000 each but we do know it includes be definition everyone earning at least $150,000. Household income is used as welfare payments are normally made on a household basis.

So 10% of households have an income of $150,000 or greater. And those 10% fund 71% of net taxation. And these are the households that Labour are saying are not doing their fair share and must pay more.

If we go slightly further down to households with an income of $120,000 or greater – which is 17% of households. Well those 17% of households are paying 97% of net taxation.

3. It's just a diversion strategy that will be morphed into a big tax grab in the 2014 election campain. Adolf at No Minister thinks Labour's tax package announcement is a tactic, not a strategy.

What makes me think that?

Apart from that lovely old song 'Is That All There Is?' there are three signs.

1) The package does not do what Labour needs to do. It does NOT demonstrate how they will pay for their election promises which now amount to over $12 billion.

2) It does NOT actually raise any serious revenue for at least ten years. It sounds good but delivers nothing. Goff already has conceded that he will borrow more than Bill English has borrowed and for longer.

3) This is a Cunliffe scheme, not a Goff scheme. Cunliffe is front footing the charge to sell this somewhat turgid deal and Cunliffe will be leader during the next parliamentary term.

Numbers 1 and 2 above simply reaffirm the conventional wisdom that Labour knows it cannot win in November. Therefore, all the planning is aimed at 2014. But what will they spring on the public when the real deal is released, some time in 2013?

My guess is that the CGT will morph into a transaction tax or stamp duty on THE FULL SALE PRICE of selected assets. It will not cost Labour's core 29% a penny but it will sock the middle income and wealthy every time they sell something significant. In fact it will be a damned easier sight to 'sell' than a CGT.

From the left

4. The rich guy who isn't a selfish prick. Eddie at the Standard picks up on Selwyn Pellett's comments yesterday on how he didn't pay any tax when he sold off a buisiness.

The rich guy who isn’t a selfish prick: Sellwyn Pellet made $8m on a business and didn’t have to pay a cent in tax and says “Clearly, if you go to Otara, Waitakere, or Whangarei, or any of these hard hit communities with low income it looks really bad [that they're paying tax and he isn't]. So I think it’s time that people like me stepped up to the plate and paid more tax”

Like the Morgans, Pellet is proof that you can be wealthy and not be a sociopath who is devoted to hoarding every cent they can get for themselves. In fact, that’s true of all the great entrepreneurs. It’s only those that are driven by pure greed that have a problem with paying their fair share.

5. Idiot/Savant at No Right Turn picks up on Revenue Minister Peter Dunne's reaction to Labour's policy.

Peter Dunne, who earns $209,100 as a Minister outside Cabinet, and who owns an investment property in Taupo, calls it a "desperate, ignorant attack on [his?] achievement". Meanwhile, 90% of us will be better off. 98% of us will pay less personal income tax, and the vast majority of us will never encounter these new taxes at all.

The numbers stack up. This is not a spendthrift plan to just keep on borrowing. Instead, its a cautious, sensible, fiscally conservative plan to balance the government's books by closing a serious tax loophole. And we don't have to sell anything to do it.

6. National's attack line? Lew at KiwiPolitico generally likes Labour's policy, but wonders what the best attack line could be for National.

Overall my initial impressions of the CGT and associated policy is that it’s pretty good, but vulnerable to attack. There are the usual economic and ideological objections — full of loopholes, won’t raise enough revenue, raises rents, punishes people for getting ahead, will require more borrowing in the medium term, and so on — but for mine the best attack line rests on the coincidence of taxation rates between CGT and GST.

If I were running the National party’s attack campaign, I’d be leading with “Tax off fruit & veg, tax on houses”, or better yet, “tax on bricks & mortar”. Just another of many reasons why GST off fruit & veg is bad policy.

Media blogs

7. Will it win any votes? Andrea Vance at Stuff thinks no.

National says same old, same old. Labour will have to borrow more in the short term, especially if it wants to take GST off fresh fruit and veg from April 1.

Labour's own polling tells it the policy is unpopular. Convincing voters, in a matter of weeks, that it's theoretically a good plan would be no mean feat. 

Getting people to trust Labour as the competent economic managers able to make this work for the long-term good of the nation, instead of squandering the revenue, is where the real hard work starts.

Goff says it's "game changing" - but it's a stretch to imagine it changing the outcome of the election.

Video

Here's the ACT Party's new media liason Lindsay Perigo interviewing Business Roundtable Roger Kerr.

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26 Comments

The Pellet Morgan point....who would make better productive use of the capital gain on the sale of the business...a Labour govt....or the same entrepreneurs who made the gain in the first place using their business skills...!

Everyone is rushing past that issue.

And I for one can only go on the dreadful 9 years of Clark...I have no faith in Labour making better use of that capital...indeed I am certain they would make a bloody mess and send an already weak economy into the gutter.

I think Labour's CGT pipedream is already a dead duck.

Fair point Wolly, the trouble is they are taking the money and the issue is who is paying.

I assume there was opportunity for Pellet to pay his employees more or help them into their own business, and I don't assume that because he made $8m that he has made better use of the money then any govt would have done.

Good for him too have made that money, but the pursuit of money purely for personal gain is at best on par with letting govt have it and waste it.

"the pursuit of money for personal gain".....how is that different from.."the pursuit of power for personal gain"...or..."the pursuit of benefits for personal gain"....!

And the spoil it all by suggesting govt is gifted enough to be able to invest capital as productively as the individual who is in pursuit of growing 'his' capital...!

Yes the issue.....The socialists plan on taking the money and the people who will be paying will be the ones unable to find the loopholes and not able to jump aboard Labours benefit bandwagon! 

My point is that there is no difference.

Govt is unable to invest productively, that is not what govt is about. 

Govt has the opportunity to increase the quality of life for the poor and create the enviroment for the entrepenure to grow his capital.  In a world where 90% of the wealth is held by 1% of the population, why do we still think that tax advantages for the rich 'trickle down'. 

If entrepenure's were industrialists ('to create the highest quality goods, at the lowest possible price, while paying workers the highest wages possible' Henry Ford) there would be very little to tax and little need for welfare.  However this is quite rare and the opposite is common. 

If memory serves me correctly, Ford was a shit to start with and only later on began to pay better wages.

So basically employers pay as little as possible, too make as much profit as possible.  So not only are the personal property rights of the employee being violated by taxes, they are also being violated by the employer.  The entreprenuer recieves a dispraportionate amount and is taxed higher and the wealth is re-distrubuted by govt.

Sort of skud but there are pitfalls for both parties. Boss owners like the early Ford soon discover they have no market for their shite...while workers with a gun to the head of the boss/owners soon find there are no jobs to be had.

Note that the profit made usually goes back into the market. Seldom is it wasted on a stash of gold. It is the return in employment on that reinvestment which Labour kills off. And this is no different to the consequences of slapping a theft tax on those earning high incomes. Screw them too much and they go away. I well remember telling Pilkington glass to shove their 14 hour shift decision in the 70s because Piggy's tax system resulted in an insane tax theft on the higher income and the 14 hour shifts invited accidents. Many others also opted to work fewer hours.

So this dairy farmer in the wairarapa has a pretty daughter?? Mate you are playing with fire, many a friend of mine has gone down this path, don't say I didn't warn you.

I think No Minister has it aboot right.  Fill Gap hasn't got a dog's show of selling this, and the thing is far too Swiss Cheesy to ever make it into the IRD playbook.

But a Tobin Tax in 2014, which will be after another showstopper in the interim (Eurolala-land, US, China housing, MENA implosion, or even PDK's old fave, Peak something or other, coupled with some quiet-Sun-global cooling thrown in, phew, better stop now, powerful stuff that Whittaker's 72% proof) does seem perhaps appropriate.  Clip the ticket on every transaction and watch the Krugerrands come rolling in (Gold, y'see).

But perhaps this credits Labour with too many brain cells, because the chances of their explaining that to their own troops let alone getting it as tight as GST currently is - no exemptions, moderate rate, simple administration, IT and other systems geared up for it - is somewhat remote.

Now, as a National policy - why - let Labour slog out three long years trying it sell their redistributionist version of the thing - 5% tax but if you have children at a decile 3 or less school, 2%, and if you drive a Red car, 1.75%  etc etc - then just roll in with a nice clean 1.5% with no exemptions and scoop the pool.

Could even work.

#2 - it'd be interesting to know what % of those households in the <$50k bracket, would be in the higher income brackets, if they weren't engaged in avoidance?

The comparison David F makes for the high end brackets are reason not to implement a higher income tax rate and instead implement broader taxation, to include capital, gains and/or land taxation - PAYE'ers take too much of the load, in general.

As for those in the <$50k bracket, 44% of households that are net tax recipients, what does that imply needs to happen to our low-wage economy? Mind you it seems some are content with low wages, so long as they pay relatively lower taxation:

http://www.interest.co.nz/opinion/54423/opinion-high-earners-fleeing-australia-would-pay-even-more-tax#comment-631179 

"Such a tax rate would make it more attractive for people to work in Australia," said Mr Plunket, who works for Chapman Tripp. "Most of them will still be paying tax in Australia at higher rates but they will be earning much higher incomes.

Makes you wonder how people can make a buck in NZ's property tax-haven, eh?

The politics of aspiration? Not if we don't have to.

Cheers, Les.

Linsay, what an absolute dissapointment. I rejoiced at your intro of being a dangerous man. But I see you are a mere apologist for the far right. Even the intro had a ranty quality about it.

Next!

Many moons ago as a student I bought a car off Linsay, paid $2000, spent $30 (new HT lead), sold for $6000. I will always have a fond place for him in my heart!

 "An Afghan refugee who came to New Zealand as one of the Tampa boatpeople is facing criminal charges, accused of running a "chop shop" which shipped stolen car parts overseas.

Mohammed Hashem Basiri, 37, is the director of Aryana Auto Parts, and appeared in the Waitakere District Court on 21 counts of receiving stolen property." herald

If convicted and after he does his time, he should be sent back to where he came from. 

Agreed. Or send him to Aunty Helen in New York. He's one of her 'boys'.

I love it how Labour and the Lefties in a desperate attempt to justify a CGT for NZ, say well, other countries have it too. So what? A lot of other countries also tax lottery winnings. So let’s introduce that tax too? Of course we all know why Labour would never do that, don’t we!

How do the Nats and righties piously claim that it is bad?  The sad story of the widow who sells her husbands business and gets taxed on the profits of sale, well that's not desperat at all.

It's just an income that has been untaxed, that is going to be treated like any other income, albeit with plenty of loopholes.

What, so the Labour Govt. can spend it on more welfare payments and other election bribes? You’ve gotta be kidding me. How is that going to help New Zealand, grow the economy and opportunity? You're dreaming mate.

If I was a retailer, I buy low and sell high, I pay tax on the profit.  If I invest in property and buy low and sell high, it's tax free.  So the disadvantage is already there in that some forms of profit are taxed while others are not, therefore creating an even playing field is a logical step to take.

As to the point of where the money is spent, living in a democracy means that leaders are elected to represent the views of the majority. Which creates the vote buying politician, how else could it be.

It's been less than 48 hours since the grand opening of the socialist gambit..pawn to oops it fell off the board...didn't take long did it....the CGT is dead and gone within 48 hours...oh but don't count out the 3 Amigos...they will fight to keep the crap ideas on the 'front page' ....

48 hours and it's fish and chip wrapping!

Harrrrrrrrrrrrhahahahahaaaa

Everyone stop bleating about the tax you may or may not pay as a result of these propsoed changes. Instead tell me how we can turn around our exporters or do you still believe that farming alone can pay our way. If it can, why hasn't it. Labours tax changes have to read alongside all their other policies.... R&D tax credits, change in monetary policy to include targets for jobs and exports not just inflation. This is but one change in a whole set of policies designed to drive and expansion of our export base with differentiated (Hi Tech) exports.

Selwyn - as long as ministers in charge of our economy are saying: “It is cheaper to buy overseas” all other export industries are struggling.

Bollocks Selwyn...your "whole set of policies" amounts to a stack of sliced pork.

As for "turn around our exporters"...around from what?....lambs are going for $140 each...wool's on a charge...so what the hell are you on about?

Well said Selwyn. I can't see what Wolly is jolly well complaining about, he seems to have his evasion strategy already worked out:

http://www.interest.co.nz/opinion/54435/opinion-why-capital-gains-tax-very-very-bad-idea#comment-631168

Anyone know if there is anything in NZ legislation that makes Wolly's idea illegal? (I think there might be in other juristictions, eg. UK.)

Anyway, again, well done Labour for at least touching the third rail:

'Shock tactics fail to give us a hefty jolt'

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10738933&ref=rss 

Not by any means perfect, but baby steps in the right direction and treading where the Right should be by definition (broad taxation), but are too left-footed and going around in circles to find any real direction.

Selwyn, good work on TV3, but that yellow tie mate - you thinking of running for Epsom? You never know, there might be some right-minded people there.

 

Cheers, Les.

www.nzmea.org.nz

"Labour has admitted it would borrow more than National in the short term to help fund new policies" herald

Oh right yeah..great idea...more debt....doh

"new policies"....from Labour!....have a guess what they will be

Can some one tell me why Farrar is focusing on household income? Are labour proposing to tax household income? If not then there are too many unknowns to make this a valid analysis.

Hong Kong is plagued by serious social problems, which are aggravated even as the economy apparently surges ahead. The most acute of these is the housing crisis. Average house prices have risen by 70 percent since 2009 and the city is generally recognized as the world's most expensive place to buy an apartment. The average home in Hong Kong costs 11.4 times the city’s average household income. The ratio in London by way of comparison is 7.2, and in New York, 6.1 [Demographia, January 2011]. Even Donald Tsang, on a recent trip to Australia, described house prices as “quite frightening”. He then went on to blame various external forces – low US interest rates, the global financial crisis, and mainland Chinese buyers moving en masse into the Hong Kong market – rather than accept any blame on the part of government policies.

http://www.chinaworker.info/en/content/news/1501/