Rewriting tax policy would help ensure equal opportunity and choice for all, says Gareth Morgan and Susan Guthrie. Your view?

Rewriting tax policy would help ensure equal opportunity and choice for all, says Gareth Morgan and Susan Guthrie. Your view?

Gareth Morgan and Susan Guthrie have authored a book called The Big Kahuna that proposes a single tax rate on all income, including from capital, and a Universal Basic Income for all.

By Susan Guthrie and Gareth Morgan

Last week we looked at why our Welfare State has lost its way, sees fit to give families earning $100,000 per year a handout, stigmatises everyone (apart from the elderly) who receives a benefit as a loser, and regards those not in the paid workforce as non-existent.

Combine that reality with the ever-widening gap between the average wage and what those at the top of the paid workforce earn and you have a great recipe for alienating large tracts of the population - not just the poor but the majority who would never make it to the upper echelons of our white, middle class suburban nirvana.

Whether they be economic or social outcasts, outcasts they will remain - and that sows the seeds of widespread social unrest such as we have seen in Britain of late.

With close to 40% of New Zealand adults receiving benefits now under our social assistance welfare model, it is obvious it doesn't live up to its promoters' billing of being a "hand up", in any way. It is an abject failure, an indictment of the tragedy of targeted welfare.

If egalitarian New Zealand is capable nowadays of reasserting the values upon which our society is founded, then priority needs to be given to providing all citizens with an equal opportunity to participate in wider society, to compete in the commercial world if that is their wont, or to contribute to society through the non-paid workforce that raises our children, cares for our elderly or is the foundation of our communities.

Taken together with the poor deployment of our capital (viz; overinvestment in property) we have produced an unattractive trio of low productivity, low growth in incomes, and increasing numbers becoming 'eligible' for social assistance. With official policy now acknowledging that the minimum wage is no longer sufficient for many to live on you have to wonder how far from sustainable our policy settings have wandered.

A total rewrite of our taxation and transfer policies to correct the tax dodges available to owners of capital, to explicitly recognise the importance of non-paid work, and to foster equal opportunities for all citizens to participate in society and the wider economy, will go a long way to reasserting the values of egalitarian New Zealand.

In short, the following package addresses what is needed to get back on this path, while ensuring no blowout of government finances.

- An unconditional basic income (UBI) for every adult - $11,000 after tax, whether you're in the paid workforce or not. This enables more people to choose paid or unpaid work - or not to work at all. Most importantly more would be able to pursue what they want to do, rather than what financial penury forces them to do. We are a rich society so to compel people to opt for paid work or face the stigma of qualifying for a benefit has no logic.

- A single income tax rate of 30 per cent, which applies to every dollar earned whether by individuals, trusts or companies. Together with the $11,000 UBI this implies no tax is in effect paid until $36,667 is earned.

- Abolition of virtually all benefits including NZ Superannuation - they are no longer necessary. With the UBI people are being encouraged to make their own choices regarding their financial circumstances, there are no poverty traps from abatement rates on benefits conspiring with progressive income tax rates.

- A comprehensive capital tax (CCT) levied on an assumed return on real capital of 6 per cent per annum (government bond rate), this being the minimum return we should require on invested capital. Capital for these purposes includes all non-current assets on a balance sheet - so buildings, land, structures, plant and equipment, software, goodwill. It does not include financial claims (deposits or shares). Debt servicing is deductible and the CCT (rate = 30 per cent) is creditable against income tax. In other words businesses that earn more than 6 per cent on capital would not be affected by the CCT. What the CCT does is claw all low-performing capital into the tax net, hence encouraging owners to better deploy their capital.

- All property, including the family home is subject to the CCT. The family home is included partly because of the materiality of this asset class as a destination for speculators seeking capital gains. To the extent a house is purchased because of its potential return from speculation rather than merely for its ability to meet the housing requirements of inhabitants, it can be regarded as an inefficient allocation of capital and shouldn't receive tax favours (as it does now). Deploying excessive capital this way inhibits growth in GDP or incomes.

The policy package addresses the inefficient deployment of capital, it makes some recognition of the value of unpaid or voluntary work, and it gets rid of this awful concept of welfare benefits designed on the so-called "social assistance" principle. As our society has got richer, the numbers eligible for these benefits have grown inexorably, evidencing the total failure of this approach to transfers.

When you do the numbers of this package the cohorts that are hit are the asset rich-income poor, solo parents and superannuitants. Everyone else is better off. Let's deal with each.

- Asset rich-income poor folk are the most significant group of tax avoiders. If you have heaps of money it's quite easy to avoid tax in this country - you simply spread your wealth across a clutch of mansions or farms. You don't need to rent or farm them (the value is in the land not what you're doing on it). You just sit and wait for the speculative demand for property to raise their value. That speculation is fuelled by a central bank that instructs commercial banks to lend on property in preference to all other forms of lending, and by the tax break on capital gains. To bring this to an end is long overdue.

- Superannuitants receive the highest benefit of all, and form the benchmark advocates of other benefits aspire to. It is indecent that the rich 'qualify' for NZ Superannuation given that the rest of the welfare system follows a 'social assistance' framework . The UBI plus the CCT will restore equity to claims on the taxpayer and force superannuitants from their overpaid perch. Selling the $1 million house for an $800,000 one with $200,000 in the bank to pay the CCT is hardly a hardship. An ability for the elderly to defer the CCT (like a reverse mortgage) so the Government recovers it from their estate would cushion their adjustment.

- Solo parents. Here the fallacy of current policy is that it discourages solo parents adopting self-help strategies that could deliver a standard of living close to that enjoyed by two-parent families. The economies of scale from sharing housing in particular and the benefits of sharing caregiver responsibilities are obvious, but the DPB arguably discourages such rational adjustment. We note also that a $3,000 per child UBI would be affordable if the single tax rate was 32 per cent rather than 30 per cent.

Overall then the package restores all the characteristics of an ideal tax and transfer regime - efficiency, equity, individual responsibility, and adequacy. But it does require the rich (rather than those on high declared incomes) to pay their fair share of tax, and it does compel two beneficiary cohorts (solo parents and superannuitants) to return to reality.

Labour has advocated a capital gains tax and exempted the family home - not a clever way to deal with the misallocation of capital and the biggest tax rort of them all. But at least it's trying.

National's welfare policy was pathetic - a populist swipe at 1,600 young people from dysfunctional homes, forced to live on the streets.

The inequities and inefficiencies in our tax and transfer regime are not hard to address. But an educated public, knowledgeable of what the issues are and requiring of change, is a prerequisite for any political commitment emerging.

-------------------

- Gareth Morgan and Susan Guthrie are authors of The Big Kahuna - Turning Tax and Welfare in New Zealand on its Head - published recently.
This item was first published in the NZ Herald.

Here is the link to last week's Part 1 in this series.

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 "... an educated public, knowledgeable of what the issues are and requiring of change, is a prerequisite..."

... Whomph....our mighty Kahuna plan has hit a wall of reality..!

 " it does require the rich ...... to pay their fair share of tax, and it does compel two beneficiary cohorts (solo parents and superannuitants) to return to reality."

....bugger...the wall just collapsed on top of the mighty Kahuna.

Ten marks to Gareth and Susan for the producing the greatest pipe dream in our time. No doubt the book returns will justify the effort.

Now back to the real world. One where equality of opportunity comes with the luck of who your parents are...in the same way that your DNA might give you size 18 feet and a weak heart. Hard bloody luck. That's the thing about equality...it's just a concept.

Of far greater importance is attitude...what you are made of...are you a lazy bugger or are you into trying bloody hard no matter what.

Gareth and Susan would do better if they diverted their skills at writing down their ideas for Utopia in our time.....to identifying ways to change attitudes that are at the heart of the mess they think more money will solve. Start with the gobshite men who think nothing of the sprogs they leave in their trail of disaster as they go. Throw in the gobshites who shove kids in front of goggleboxes 24/7, while they go to the boozer or pokies and then bitch about teachers not doing a proper job....Finish off trying to discover a way, other than to shoot them, of changing the attitude of the gargabe individuals who cook up drugs and peddle them.

Oh and you might also put some effort into finding a way to erradicate the parasitic banks with their credit drug. 

Wolly - you miss the point entirely.  You've stated that the authors would be better ....

identifying ways to change attitudes that are at the heart of the mess they think more money will solve. 

Yet the Big Kahuna economic/social model does not throw "more money" at the beneficiary class you refer to, rather it delivers less public money, and instead encourages (i.e. perhaps, 'forces') those with low motivation into self-help strategies - such as accommodation sharing and part time work. 

Indeed, the social phenomena of beneficiary bashing would disappear overnight were this policy prescription adopted.

So, one has to consider that those who discount the Kahuna prescription and resort back to that longstanding favourite passtime (i.e. dissing the social welfare system and its beneficiaries) as someone who prefers to retain this very system as the status quo.

Put simply, you are a hypocrite trying to disguise yourself as a realist.

Wow...you must think this kahuna thing is going to happen...how?

How much is the book?

I'm guessing it will happen one of two ways;

- commonsense prevails, or

- it is implemented when the situation becomes such that there is no other alternative.

And no need to buy the book, Wolly.  See more detail here;

http://www.gmi.co.nz/bigkahuna/ 

or visit a library.

"there is no other alternative"......now that's likely to be never..= reality

Far more likely is a falling state sector employment ceiling. A managed reduction in benefit payouts. A rise in retirement age for pension payments. A move to plug tax loopholes. An increase in immigration. More govt spending on spin and media fluff. Extra payments for jenny Shipley et al. New fleet of German luxury cars for Ministers. A splurge on refurbishing the Beehive. An end to regional council money grabbing. The recovery of unpaid student loan debt.

Kate - I agree the big Kahuna  "encourages (i.e. perhaps, 'forces') those with low motivation into self-help strategies - such as accommodation sharing and part time work."  

My impression of the DPB is that it supports a lot of middle class people who have decided they aren't  "in  love" any more.  The DPB seems to provide an easy option for those whose relationship is going through a bad patch to give up and once a couple is separated there tends to be no going back.

One self help strategy would be to try a bit harder with their relationships. No DPB, i.e. no change in your financial position, and quite possibly a decline, if you move out  might motivate these people to  try a bit harder.

Bang on; and it never ceases to amaze me how wolly and those like him blame the countries economic woes on benificiaries. They seem to think that those on the lowest rung of the financial ladder who have the least influence on any economic decisions and actions are somehow to blame for everything that is bad in the economic sense.

Yet they can't think critically for just a moment and realise that the biggest beneficiaries and bludgers of them all are companies lie South Cantab Finance and those who invest in them. They get bailed out to the tune of billions of dollars of taxpayers money of which a portion comes from income earners who will never have any money to invest in anything because they don't earn enough to save anything. Yet they are expected to pay through their taxes to bail out those who have money spare to invest for financial gain.

If you are well off and for example put a million dollars in a term deposit for a year you receive a nice return (however low the interest) on that million dollars and your wealth increases. Where does that profit come from? From low income earners who might need say a car or repirs to their existing car or home, etc. They can't afford to pay up front so have to take a loan out. They pay interest on that loan which the bank uses to pay interest to the million dollar depositer. The million dollar depositer needs repairs or a car they pay the full amount thus they have no interest payments to make. This is just one small example of how wealth is being transferred and how the gap is getting bigger and bigger.

There is a finite amout of money in the entire world (albeit an ever increasing finite amount). The entire worl'd money supply has been estimated to be around 75 trillion USD. This means roughly that in order for 1 person to become a millionaire, around 80 people must have no money at all which means many of them might die (eg starvation, treatable illness they can't pay for, etc.) That is one of the main problems with our system, in order for someone to be successful (we seem to base success on financial worth) then many others must have their lives destroyed). It's crazy.

Oh you stray too far from the truth stray76...way too far...I have never blamed the mess on the huge % of the population receiving benefits or the pension...

You need to read what people post.

The failure and the blame should be heaped on the idiot politicians who have over a period of decades secured their fat bums in overpaid seats in govt..and in Parliament, by promising to hand out benefits in exchange for votes.

Likewise I have rubbished this govt for the manner in which it has handed out massive pork helpings to it's fat arsed rump and that includes the SCF rort ...and the bloated handouts to Shipley. who ought to have been told to help out for nothing or expect to be cut adrift from all such pork appointments.

No amount of blathering from me or you, will bring an end to this rorting system that causes so much stench to fog this economy. The scams and rorts and bludging and political payoffs are part of the NZ way of life.

Now sit back and watch as all the parties and pollies dish out the BS and the promises they cannot keep and don't bloodywell intend to keep....the waves of lies and utter shite will be crashing through the poodle idiot media for the next two months.

Hmmm, yep I have to say my bad on that one. Not sure how I read in your post what I thought did initially. I hate banks and the banking system with such a passion that it somehow blurs my vision and fogs my find, and you had the word bank in your post. See, it is your fault.. (That's a hard sell but I could convince myself.....)

Anyway, my apologies for being a twat.

Nah, stray ... you're not the twat.

Re-read Wolly's first post.

There are no comments about government in there - just a bunch of stereotyping of what he implies to be large tracks of the general population as being "gobshites" - with a last line about banks.

And what I found really funny was his condemnation of parents who sit kids in front of computers 24/7 .... given the volume of his posts just in this forum! 

:-)

 

 

James Bartholomew's " The Welfare State We're In " has a good lash at the UK's welfare state , since it's inception in the 1940's . Get it on Amazon.uk , cheaper copies available  than on Amazon.com .

... the issue isn't " bashing beneficiaries " , it is bashing the politicians who establish a hand-out for every " needy " circumstance that a voter may sign up to .

The " do gooders " of the world are destroying it . They are the barbarians , not at the gate , but well esconced within the power circle of the very society which they purport to " serve " .

Not disagreeing there - hence my support for the Big Kahuna - it's the only serious change initiative/idea I've seen which attempts to find a way out.

Wolly... not sure where u are coming from with those comments... this Big Kahuna is a good idea...  no need for cynicism... sure the chances of it happening are slim...

I'm almost 50...  I'm well read..  I've had an interest in markets and economics since the late 1970s'...  so i've had many opportunities to see economic reality diverge from the ,then, current economic fashions of the times... ie. economic paradigms that are false.... 

One of the MOST disturbing trends of the Western Worlds' form of Capitalism, over the last 50 yrs, has been the concentration of wealth in fewer and fewer hands.... It is an accelerating trend with disturbing longer term consequences. ( nothing to do with egalitarianism )

On that basis alone ...  I support the "Big Kahuna"...

There are many other reasons..... Here is and example of a unintended "perversion".of the current system.

I was talking to a Solo Mum who is being forced to "retrain"... She has taken out a $6000 student loan and is doing a "Makeup" course, that will teach her to do makeup on movie sets. The makeup kit alone cost $3000...    What are the chances of her getting work on a movie set.???   She is compelled to do a course in order to keep getting the DPB.

Easy for us to say she is crazy going into debt to do a course that has nil chance of getting her employment...

The Big Kahuna gets rid of this kind of bullshit....   She will get $10,000 and if she wants to top that up, she can get a parttime job... Simple.!!!!

 This big Kahuna is the best idea I have come across.. Sure.. it is not perfect... but is a damn sight better than Brash lowering the minimum wage.... or tweaking the current satus quo.... It is worth being positive about it..!!!!

Cheers  Roelof

No doubts the current madness has to change but if we rush off with utopian visions that distract from what can be done...then we may end up fooling ourselves and the madness continuing.

Instead of a grand plan with bells on..how about some simple steps..

Money down that this is what Key is up to. Post the election expect another round of screwing the waste from the system.

There is nothing Utopian about this.

I see it as a wonderful way to change direction...  A first step.

The GFC marked a paradigm shift....  !!!!   the old ways no longer work.. Yet John Key is still using the old paradigm....  Borrow... grow.... borrow...   and at the edges he is trimming things.

  Ireland..Britain...Greece...    Brutal austerity is what we face in the future if we just "tinker"... while doing things as we have for the last 30 yrs.

The BK  ..is actually a remarkably simple idea... it is hardly a grand plan...  It is a new beginning... from which other good ideas could evolve.

If there was a Big Kahuna party...  I wonder how they would poll..???

The model needs a much higher general public familiarity for it to poll well in my opinion.  I imagine that the authors would really like an existing political party to pick it up - but failing that, perhaps the next general election is a target?

Yep, unfortunately it seems as always that a large slice of the population seem to be lost in a myriad of celebrity culture and reality TV. They can tell you what Kate Middleton does to stay thin or what dress Angelina wore to the oscars but mention economic policy and you can see the puff of air in one ear and out the other. Then there's another big slice who just shrug their shoulders and say "there's nothing I can do about anything, it's just the way it is". Frustrating, but I guess that's just the way it is.......aaaarrgghhh, I'm infected!!............. <sigh>

 

 Good “Hands on NZculture” – but where are skilful jobs ?

One important reason, why our economy is going completely wrong in this country is:

Job offers do not correspond with a great “Hands on NZculture” of the majority of the population – there are simply not enough skilful jobs for Kiwis in the real economy – manufacturing or others.

I blame the government/ policymakers allocating these jobs to Asian and other countries ordering infrastructure needs in the sectors energy, transport and telecommunication in the billions – for years. I blame the government/ policymakers of not planning ahead and give incentives/ support for companies in the production sector and aim for the right ratio between what we are, who we are, can do and are happy to do in our society.

 We have governments/ policymakers for years, which are miscalculating society vs economy – creating inequality/ low wages/ etc.

I totally agree with Gareth, even if vested interests (on the right & left) will never let it happen.

With our current taxation system, NZ is heading towards having a wealthy & hereditary landed aristocracy and an underlying underclass.  The removal of the gift tax was the final link in that system.  You can gain assets all your life, pay little or no tax, and transfer the whole lot holus bolus to the next generation.  The lack of any form of CGT or land tax is a massive part of that.

I challenge anyone to find a flaw in my reasoning

Cheers to all.

Flaw: The person who accumulated the wealth leaves behind no family and all the wealth to a hospital for children!

Oh wow!  Totally destroys my argument! 

(Darn, must get that sarcasm font inserted!)

Cheers

 

I agree with wolly. Starting with nothing but motivation is still all you need. Also if you start with everything poop attitude can still loose it all.

There should be no dpb if the father is not identified , and it should be no more than 1-2 kids max. And People making p should get mine clearing work in Kabul.

In December 2009 it was $40,000 tax free now its $36,667 effectivly tax free.  Whats the deal?  I like the plan but the tax free amount is getting less and this trend concerns me.  I support a simple defined tax plan that removes all the loopholes put in place by the 1%'ers. 

A loophole you created was exempting shares and deposits.  The best way to invest in a business is to create one, not buying shares.  I am against picking winners and losers.  Why shouldn't shares and deposits be required to make a return equal to govt bonds?   

"A comprehensive capital tax (CCT) levied on an assumed return on real capital of 6 per cent per annum (government bond rate), this being the minimum return we should require on invested capital.......It does not include financial claims (deposits or shares). " 

If the government came up with a plan like this, then I would be prepared to pay more tax.  However I  would still expect the government to reduce its spending and slim down. I know its about attitude but a start is better than nothing or more of the same.

One of the major positives about this model is that the whole of WINZ would disappear overnight (as would all of the policy advisors in the Department working on related programmes and all the property, purchasing, security and other head office admin staff that go along with maintaining this nationwide network) - and IRD would only need half - if even that - of its current workforce.

So - the Kahuna is a significant start at smaller government - more than any other single reform in NZ history, I would imagine.  And then there are the knock-on benefits to a socioeconomic structure which gives all people the same incentive to better themselves - such as savings in policing and the justice system.

Smaller govt would be great....why is the Kahuna idea unworkable?

It's not unworkable.

It's not unworkable as it stands , in it's pure form , as laid out by it's originator ..... but once we have set in place a parliamentary enquiry with special frames of reference and run the resultant conclusions past a select  treasury task force to rigourously apply both current and future unforeseen economic happenstances then set up a royal commission to look into the feasibilty of implementing the remaining significantly vital features of the plan and consulted with local iwi ..... then I'm sure that it will be unworkable at that juncture  . This assumes of course that   we should all live so long as to see the final draft paper .

So between 25,000 and 50,000 in the public service jobs go - instantly ( those unemployment graphs are going to look spectacular!). And those people do what? Sure they get $11k p.a. each whilst they restructure, and then....leave NZ? Because weight of numbers isn't going to allow many to retrain or redeploy here.

Higher emmigration in the immediate term is a possibility - however, the Kahuna will see signficant redeployment of capital in my mind - into business ventures with the ability to earn more than a 6% return and/or into shares (which provides other businesses with fresh capital).  And for this reason I think it would be economically stimulatory - meaning job creating overer the longer term.  Yes, the short term spike of government redundancies would be there - but a 'new normal' would emerge.

Great....and who do you see telling the State employees to bugger off...and what time delay would there be between the start of the Kahuna shift and the arrival of utopia? And what would the cost be, given the state staff would have to paid their superannuation lump sums and the law would lead to large payouts for being made redundant to satisfy a govt flipflop.?

Oh hell and let's not forget the need for the govt to appoint a new minister and fork out to fund a bloody expensive entity given the task of determining how the Kahuna would work....long before spending more massive amounts to plan the working...followed by massive amounts to make it work...and yet more to patch up the damage....Who to lead the Kahuna Ministry...oh I know...Jenny Shipley on triple pork!

Wolly - the massive reforms of the Lange/Douglas era happened in less than 5 years.  And they required a rewrite of a whole lot of legislation.  Major reform simply requires a strong political will.

The old "Government Superannuation Fund" was closed to new entrants decades ago.  Well over 90% of our current batch of civil servants won't be on it.  And redundancy has been a 3 month payout as standard practice in government employment contracts for decades as well.   The "enormous" costs of downsizing which you imply simply is not there anymore.

I'm sure you have met some of those farmers 'caught out' by Lange/Douglas changes. You'll know, then, how traumatised they were, and what a tragic state many of them and their families found themselves in. Lange, himself, often said that he would 'go to his grave,' similaly traumatised by the effects of those policy changes upon the individual. And I am sure he did. 

I assume you mean those farmers impacted by the removal of subsidies as per the Muldoon era?  But, of course, they were not the only lot to suffer - similarly many manufacturers propped up by tarrifs on imported goods also went belly up - as did their workers.  Yes, the swiftness of those changes disadvantaged NZ for many years to come compared to Australia, who implemented their neoliberal reforms much more slowly and who didn't breakdown the unions (through radical changes to employment contract law) in the same manner as NZ did.

I don't use the Lange/Douglas example as what the outcomes of the Big Kahuna should be - rather as the example of how swiftly reform can be implemented and similarly how swiftly its economic impact/effect can be felt throughout the economy.

The difference is - the effect of the Big Kahuna would be stimulatory - not predatory (as was the L/D reform).

Kate...you haven't the foggiest idea what the downsizing costs would be....and back in Lange's time the Douglas utopian dream was also said to be the next best thing to sliced bread...was it?

"Major reform simply requires a strong political will"....and that they are done and dusted and forgotten about before the next election!

Neoliberalism - the next best thing since sliced bread - certainly not viewed that way by the general population - only a very small elite class who stood to benefit from the liquidation of state assets.  Few ordinary folks bought the 'trickle down' theory.

 

 

Don't forget most of those 25-50,000 bureaucrats couldn't get a job doing anything useful, so then what ....

They compete with the only thing they have left, their labour, for lower wages. That lowers the wages bill across the spectrum and causes a massive sell-off in housing that  people can no longer afford on their reduced income. Rents fall, the whole economy has its underpinnings pulled out and collapses to a much lower base. A bit like the earthquake that removed the underpinnings of the nation....(So it's a 'no goer'..because if it came in, my bearish views would look positively bullish!)

You've hit the nail on the head there in suggesting the underpinnings of this nation are presently in property.  The sooner we shake that out, the better.

Wonderful utopian vision you have Kate...it's a nice vision too....and I too would like to see a change so that the cost of property were brought back to where people could afford to buy or build without resorting to borrowing money from thieving parasitic bank...but a collapse would mean bank failure...and your savings in the bank going poof into nothing....the riots by the criminals in the UK would look like a picnic for some time....count on it.

More silly scaremongering, Wolly.  And besides, the RE collapse you refer to has already happened worldwide - NZ, Canada and Aus being late to the party.  But, rot in the major financial institutions of this world has already set in.  That issue is a completely different problem - but indeed one at the heart of why NZ needs to reform urgently.

Many of the skills used in the public serivce are transferrable (accounting, law, secretarial, PR/media etc.).  Where the core government (i.e. policy analysts, management and the like) are concerned, they have been on very good salaries compared to equivalent tertiary quals (e.g. undergrad/postgrad degrees) in the private sector of late.  These salaries, along with the secure nature of the employment have allowed them to invest, principally in the real estate market, over many years.  These property investments however may not be returning 6% and many redundant civil servants in this higher salary range would, like many ohters who have invested in property, redeploy their capital over time - or seek a better return on that capital (which might involve accommodation upgrade/improvement) - so again, all this activity is stimulatory.

 

Transferrable to where, Kate? A private sector that's already at maximum employment levels? Arguably, over empolyed at the moment, as businesses try to keep their core staff together; hoping for better times to come. I understand, and even agree with, the sentiments of GM's piece. But practically I don't seeing as being possible. You can't demolish a pyramid from the bottom, up ( not without massive support - which would be financialyl self-defeating in this case). And the bottom levels are the ones that would suffer most in any public sector revamp.

Nicholas - the Big Kahuna would deliver the seed capital needed to private sector businesses to allow them to grow and flourish (and absorb the excess labour over time) -They are presently starved of that capital and opportunity due to our general public over investment in the property asset class.

I think you are entering the dream state the Aborigine speak of kate.

Far better to signal a slow but steady reduction in the fatter state pork payments....to ease in the change to reduced benefits and later pension payments as well. Granted there are state bosses receiving way more than they should, in fact a bloody heap more....but what you are suggesting would have the Sir Humphrey army buggering the state sector good and proper.

JK wouldn't get his biscuits and the tea would be cold. Hell the Beehive would stop buzzing.

Yes, the Beehive would stop buzzing and the private sector would become a far greater percentage of our economy.

And you've got a problem with that?

 

"buzzzzzzz"

 

From Bill Bonner

How Property Taxes and the ‘Curley Effect’ Are Killing Baltimore
As affluent residents leave town, the political playing field tips further and further in favor of pro-tax Democrats.

By Steve H. Hanke and Stephen J.K. Walters

This coming Labor Day weekend, traffic in downtown Baltimore will move at more than 100 miles per hour — or not at all: The city’s main streets will be closed so that IndyCar racers can compete in the inaugural Baltimore Grand Prix. Much more than prize money is at stake.

Nine days later, on Sept. 13, voters will pick a mayor, and incumbent Stephanie Rawlings-Blake is betting that the auto race will draw thousands of free-spending tourists and stimulate the local economy, thereby demonstrating her vision and competence. In fact, it will be an economic dud, a money-loser even for its promoters, and a logistical nightmare for residents. 

The race exemplifies the city’s development strategy: Subsidize big downtown projects with other people’s money — in this case, over $6 million in federal stimulus funds for the two-mile race course — and proclaim an urban renaissance.

Away from the waterfront, this strategy’s failure is apparent. The city has lost 30,000 residents and 53,000 jobs since 2000, marking the sixth consecutive decade of population and employment exodus. About 47,000 abandoned houses crumble while residents suffer a homicide rate higher than any large city except Detroit. The poverty rate is 50% above the national average. 

Much of this decline is a result of the city’s exorbitant property- tax rates, which are twice as high as any other jurisdiction in Maryland and Washington, D.C. The encouraging news is that all four major mayoral candidates are promising property-tax relief.

Ms. Rawlings-Blake promises an inconsequential cut to 2.068% from 2.268%, spread over nine years. It would be “paid for,” she says, with revenue from a casino that doesn’t exist. Her reluctance to consider stronger medicine reflects not only poor economics but something more sinister.

To attract what little investment Baltimore has in recent decades, public officials awarded subsidies to big developers to offset the difference between the city’s confiscatory tax rate and that of nearby counties. But developers have to “pay to play,” which assures a reliable flow of campaign contributions to sitting officials — and invites corruption. Indeed, Ms. Rawlings-Blake took office only 18 months ago, after the previous mayor resigned as part of a plea bargain to resolve a scandal involving her allegedly accepting gifts from a developer seeking subsidies.

Now Ms. Rawlings-Blake’s challengers are asking: If tax breaks for the connected are a good idea, why not give them to everyone? State Sen. Catherine Pugh promises to halve the city’s tax rate in her first term or not run for a second. Otis Rolley, a former director of city planning, offers a similar 50% cut for the first $200,000 of assessed value and higher rates for more expensive properties (or vacant ones). And Jody Landers, a former city councilman, promises a cut of 30% to 35% phased in over four to six years. 

But tax revolts are hard to win at the local level. The problem is what Harvard economists Edward Glaeser and Andrei Shleifer have called the “Curley effect.” In Boston during the first half of the 20th century, Mayor James Michael Curley built a political machine by strategically shaping the electorate — taxing well-heeled “Brahmins” heavily and redistributing the proceeds to poor Irish immigrants. This not only bought Irish votes but chased the old Yankees out to the suburbs, further tilting the political playing field in Curley’s favor.

In modern Baltimore, the machine has exploited class divisions, not ethnic ones. Officials raised property taxes 21 times between 1950 and 1985, channeling the proceeds to favored voting blocs and causing many homeowners and entrepreneurs — disproportionately Republicans — to flee. It was brilliant politics, as Democrats now enjoy an eight-to-one voter registration advantage and no Republican has been elected mayor in 48 years.

But Baltimore’s high property taxes have repelled investment in physical capital for decades. As that capital decayed and became scarce, labor became less productive and less prosperous. In 1950, the city’s median family income was 7% above the national average. Today it is 22% below it. And it won’t be easy to undo this damage as long as City Hall remains in the hands of politicos who are committed to a fatally flawed business plan. 

Other noteworthy victims of the “Curley effect” have been rescued via statewide referenda. Boston, for example, was in worse shape than Baltimore back in 1980: Its population had fallen more in the preceding three decades (30% as opposed to 17%), its per capita income was 2% lower, and its crime rate was 42% higher. Then, in 1980, Massachusetts voters adopted Proposition 2 1/2, forcing Boston to cut property taxes by an estimated 75% within two years and capping future annual increases at 2.5%.

It was the kind of reform Boston needed but wouldn’t have chosen itself (akin to California’s earlier Prop 13, which revived cities like San Francisco and Oakland). Businesses and residents flocked back to Beantown. Its population rose 10% between 1980 and today, while its per capita income is now 43% higher and its crime rate 25% lower than Baltimore’s.

The spillover benefits of capital-friendliness — enhanced public safety, school quality, and economic and social mobility — are much- ignored but crucial elements of tax reform. As the renowned urbanologist Jane Jacobs once said, “cities don’t [just] lure the middle class. They create it.”

Baltimore stopped creating its own middle class decades ago, but it has a chance now to reverse decades of disinvestment, depopulation and decay. All voters have to do is invite capitalists back to town for more than just a weekend car race.

Mr. Hanke is a professor of applied economics at the Johns Hopkins University. Mr. Walters is a fellow at the university’s Institute for Applied Economics, Global Health, and the Study of Business Enterprise.

Regards,

Bill Bonner

One thing that I don't like with this proposal is the CCT. Firstly, I'd like to know where I can get a 6% pa return after tax. Secondly, capital (building, land, equipment etc) has been purchased with post-tax money so it sounds like a double-tax to me, and like I'd be better off spending the extra cash on holidays and other non-taxable luxuries. In other words, I don't think it encourages saving (but spending half the year on the beach in France does have some appeal if I have to!).

Also, I don't get the inclusion of the family home in the CCT. A family home does not usually provide any return (and the money used to purchase it has already been taxed once). "To the extent a house is purchased because of its potential return from speculation rather than merely for its ability to meet the housing requirements of inhabitants" - I completely disagree with that. Most people buy their family home to meet their housing requirements. Moreover, making debt servicing deductible means that the bigger the mortgage, the less tax people will pay. Again, hardly an incentive to save or a reward for (responsible) people who like to save before they buy and are therefore mortage-free.

Also not sure about the $3,000/child UBI. Would it only apply to the children of solo parents (it is mentioned in the solo parents paragraph)?

Elley - surely the IT consultancy work you and your husband do returns more than 6% on the capital you have invested in plant and equipment to run the business?

Your explanation of double tax - well this is exactly what happens every time you pay GST on a purchase - the tax is paid on earnings already taxed either by way of income and/or profit.

Spending your extra money is good for someone else's business - no problem with that.  If all capital deployed seeks a 6% return (the return on government bonds) then I would imagine that interest rates on savings would increase to this amount to attract such capital?  But not sure about the economics of that - you could ask the question on GM's website;

http://www.gmi.co.nz/bigkahuna/ 

The deductibility of debt servicing, I assume, is taken into account in terms of the qualifying 6% return.  So, it therefore suggests a reasonable profit on the capital invested?  But again - it's detail you should check in the Q & A facility on Gareth's website.

And I think the UBI would apply to all children?  But again not sure.

All good points - I'd encourage you to look deeper to get the answers. 

Kate, yes to your first question (very little needed in the way of equipment, no plant/premises other than home office). You have a point, I was thinking of non-business related capital.

With regards to the child UBI, if it applies to all children it means that people who don't need it would also receive it. Eg, we have 5 children and don't need govt assistance but with the UBI we'd still receive the same as a single parent or people on a low-income. Not that I mind that much but it seems almost worse than WFF which is at least income-tested.

I'm not sure I support the tack-on addition of the $3,000 per child UBI.

It requires everyone to pay a 32% (as opposed to 30% flat tax rate) thus removing some of the egalitarian nature of the model.

Given our socialised health and education benefits - it's already alot cheaper to raise kids here, than in the US, for instance.

Remember, you can offset income tax paid against the capital tax due each year. Also, the yearlt capital tax can be deferred so if an elderly person has a home they have always lived in they can defur the tax so it is eventually passed on to the estate.

The bigger the mortgage, the bigger the house, the bigger the capital tax obligation. Of course it's a reward for people who save before they buy. They have no capital tax accumulating during the period they would have been servicing a mortgage and they receive tax free interest income on their savings during the same period. (Which I disagree with)

The funny thing about the right is that they do not approve of hand outs, except the ones that they give to their own kids. So what are they saying, no hand outs at all as the Hewlett Packard guys did to their own kids, our just no hand outs to poor people so their kids can get a start in life. So it must be that their kids deserve their handouts from mum and dad, but poor kids deserve to be poor. Wouldn't we all be richer if every New Zealand kid got a good start not just the rich ones.

The way we are going we will end up just like the British, what an awful way to end up. In the UK today, 2/3 of the total land area is owned by 158,000 people, most of the rest is owned by the state and the vast mass of the poulation are crowed into the little bit that is left. Meanwhile the are conned everyday into thinking that this is a good idea.

New Zealand was meant to be a better Britain, a fairer place, not the same or worse.

Anyway Morgan is on to something. Income tax and GST is simply not going not going to do the job, too many ways around them both.

 With close to 40% of New Zealand adults receiving benefits now under our social assistance welfare model, it is obvious it doesn't live up to its promoters' billing of being a "hand up", in any way. It is an abject failure, an indictment of the tragedy of targeted welfare.

So the answer is to have 100% of the population receiving a benefit.  The issue we have already is that too many people are being rewarded for doing nothing.  We already have the issue of uncontrolled breeding and raising these children to have the same entitlement attitude.  Gareth's answer is to continue rewarding this attitude.  I don't believe the taxpayer wants to continually handout to those that don't want to contribute to society.

The hard questions need to be asked.  Why have we ended up with such a large welfare state?  What has changed over the past 30 years that requires both parents to work?  Why is half the population corrupt - effectively accepting bribes (WFF) from govt. in return for votes?  Who said that the govts. main role is wealth redistribution?

Yes the tax system needs to be rewritten and simplified.  A flat tax rate on all income does this but 30% seems high IMO.

On the other hand, with everyone receiving $11,000 It could be realistic for an employer to pay someone $5 per hour. Someone working 30 hours a week for $5 per hour + the UMI still ends up with the same amount in pocket as someone on minimum wage as it currently stands. 

 

So the minimum wage isnt done away with.

regards

Close enough though to remove most of the distortions I think. It's worth remembereing that even in the absence of laws there is still a cost of labour that sets a minimum on the amount you can pay someone. 

Except without the shadow of cancelation of benefit and work test obligations hanging over them, the unemployed could look at someone offering $5 an hour and laugh. The hourly rate would settle at a level people feel is a satisfactory compensation for their labour. I for one wouldn't work for $5 an hour, but maybe there are some who would.

Would have to start sending some union heavies round to visit anyone who started working for those sorts of wages!!

;-)

So the answer is to have 100% of the population receiving a benefit. 

No, think of it this way - the working NZers under this socioeconomic model simply get their first $36,000 (or thereabouts) in earnings tax free.

 Asset rich-income poor folk are the most significant group of tax avoiders. If you have heaps of money it's quite easy to avoid tax in this country - you simply spread your wealth across a clutch of mansions or farms. You don't need to rent or farm them (the value is in the land not what you're doing on it). You just sit and wait for the speculative demand for property to raise their value. That speculation is fuelled by a central bank that instructs commercial banks to lend on property in preference to all other forms of lending, and by the tax break on capital gains. To bring this to an end is long overdue.

Maybe we just swap out 'Asset rich-income poor'  for 'National Voters' and say it how it really is.

A sound observation - and those asset-rich, income-rich National voters would likely favour this proposal - as they understand the importance to private sector business of a more balanced approach to deployment of capital.  Sadly, they are a minority of National voters, I fear.

 

But Labour for 9 years did nothing about it either....so if its really "National voters" why is that?

Also Im not aware teh Central bank instructs banks how to lend, do you ahve some proof?  URLS? etc

regards

much more detail is needed b4 i could support or not gareths views.  Yes he appeals to a more egalitarian society & i would support that - but we r a democracy - do most support it. And there is so much assumed and so much bias.  why must all forms of capital/assets be taxed as if they were used efficiently (& will gareths kiwisaver make up the difference  for me - they've earnt about 2 not 6 %) is that our ideal society - everything must be treated in terms of economic efficiency?  And what of those who invest & buy assets overseas? will that be taxed? (& where does gareth invest hi s own wealth) and why aren't financial transactions on the table? etc   I'd have thought rather than starting with a  "here's a new tax system" we should start with proper transparency on the current one - ie there should be easliy accessible info on all companies operating in NZ, their annual earning, profit & tax paid & likewise with individuals - & on the means used by individuals to reduce their tax.  likewise this can be done on welfare rorts.  Once things are know they will probably be solved.  But really, have we become a society were 'social assisstance' is a taboo word - its getting somewhat pc.  what is wrong with such is surely to have the cart b4 the horse.  likewise the idea that all govt bureaucrats are useles is simple idiocy  but we do run the danger of "dreaming of systems so perfect that no man need be good" (can't remember the poets name)

Yes, further policing of the current tax/welfare system might get us somewhere - but it doesn't solve two fundamental problems;

- the present over emphasis of capital investment in property

- our present intergenerational welfare trap.

And it adds to the problem of big government - more policing needs more people.

In terms of the 'no man needs be good' notion - the proposal would produce a social attitude quite the opposite - as there would no longer be any tax discrimination applied to striving to get ahead - i.e. there is a flat tax system on income (rather than the current graduated one) - and it removes the present disincentive to work where existing beneficiaries are concerned (i.e. no means testing in terms of benefit received).

All very well to come up with these fanciful ideas at the peak, why didn't he come up with this ten or twenty years ago?

Trouble is it still assumes an economy moving foward, rather than one past its best as energy and demographics work against it.

to put it simply, the current political and economic systems are rooted and need changing, but if we signpost it as Wol wants, then the Mandarins will have time to entrench.

Rip the bandaid off! 

Mr Morgan, I like a lot of the stuff you come up with...but if you are wanting to get mass appeal with your message, you need to simplify it and have a catchy opening...the average joe would stop reading after the first couple of paragraphs.

some additions to my earlier post in view of Kate's reply

Gareth's earlier article assumes reduced government an good thing - & Kate uses the term "big government" with the innuendo it is too big But the phrase on its own  means nothing - big car? in the sense of too big?  who knows without first asking what is the role/purpose of the car/government.  Gareths earlier articles suggest he wants to start at basics.  Then one early question before answering about tax is why government  then u'll know if one is too big or small.  And re Kate's concern re people investing in property - i share the concern of high property prices.  i would like our kids to be able to afford their own home within a reasonable timeframe - but there are some reasons for the high prices we could look at - eg council powers on city limits etc - ie we don't need to toyally rewrite a new tax system for this. And Kate, if i could believe a flat tax system would solve any need for people to be decent etc - well i don't know what i'd think  - i'd be mind blow.  by the way, didn't Gareth start out putting all he had into property?

I think I read somewhere that Govt accounts for 40% of our economic activity - doesn't really matter what its "role" - at that type of level of economic importance it is crowding out the private sector. 

Urban limits are a factor in the increase in property prices here - but don't forget that farm prices inflated beyond that of urban residential dwellings - and that had nothing to do with metropolitan urban limits.  It had everything to do with easy access to credit and a favourable tax regime.

Don't understand your meaning about decency and a flat tax rate.  And Gareth has owned a thriving economics consultancy as long as I've known of him - his larger accumulation of wealth however having been made in investing in his son's TradeMe business.

then Kate you probably should recognise your knowledge is limited - u should ask Gareth.  As for it really doesn't matter what governments role is - really - there will be many who don't know that.

Ask what of Gareth Morgan - what he sees as the role of ogvernment - sorry, as again, I don't quite get your question/meaning. 

Some Thoughts: "i would like our kids to be able to afford their own home within a reasonable timeframe"

Do you have any idea what it would cost, today, to build a 100 sq/m moderate home on a moderate sized section in an outlying suburb.

The sheep are starting to question our welfare state.  Some comments from another forum.

 "Benefits

This is a can of worms, and i want to try and avoid a left vs right slanging match so i'd appreciate thought before posting.

Benefits are an important part of our society because they are intended to provide a safety net when the wheels fall off life, but I think everyone would agree that things aren't working well. There are 2nd and 3rd generation "career' beneficiaries out there right now, with more following them, and that is wrong on a hell of a lot of levels, so what do we do?

Shit happened in my life a couple of times, and I have been on the DPB and on the dole, and I have to say it really sucks. The money is appalling - I budgetted my arse off, but still never had enough for anything beyond the basics and I got in the habit of checking my bank balance before I bought gas or groceries. I hated when the conversation at parties got to "so, what do you do for a job?" and I hated having to answer to DSW as they were then and sitting in the waiting area surrounded by other beneficiaries. I can't for the life of me see how ANYONE would actually choose to live like that, yet people do that for their whole lives. For me there was always a light at the end of the tunnel, but for a lot of people that tunnel is one way only, and I can't begin to imagine how fucked up that must feel.

It's bad for society - we have hundreds of thousands of people sitting on their arses, and that's kind of like pulling one plug lead off a bike engine. How much stronger would our economy be if even half of them had a job? They would earn and spend more, they would produce shit that could be exported or used here, do stuff that needs doing etc Crime would drop and hospital costs would drop as well as lower benefit payments.

So what do we do? Sit back and demand Pavlova Bennet gets tough and hands out cards controlling where people spend their money? Or make it harder to go on a benefit and stay on one? Nice idea, and pretty simple to do, but if the dole is harder to get or less, will Johnny Benneficiary decide "ah fuck it, the pricks have taken away my dole, I'll go and get a job"?

Do we go back to the days of the MOW and Railways where there were jobs for anyone and everyone? I can still remember my headmaster telling me that if I didn't lift my game I'd only ever work for the MOW because that was as bad as it got. The idea has merit because having work is good for you, getting a wage means you have more to spend (more tax, more economic activity etc), but it's a huge move from where we have been heading since the 80s, and where will the money come from?

Do we introduce mentors for kids in 2nd and 3rd generation benefit homes to help them get their act together? I remember a few years ago my neighbour's son was working on his car, and we got to talking about how much he loved fixing cars. I asked why he didn't do an apprenticeship and he looked at me "how do you get one of them?" I talked him through doing pre-trade training at tech, then what an apprenticeship was and where it would take him. He was interested and keen, but got distracted by weed and loser mates, and I sometimes wish I had kicked his arse until he got off it, but I was busy and had other shit to worry about.

Buggered if I know what the answer is, but there has to be one."

"Tough topics need tough decisons and when it comes to benefits there is none tougher. At present the benfits are too low, but there are too many people claiming them. If the number of beneficiaries could be reduced then the payout could be increased without costing the taxpayer any more, and maybe even make a saving.

My personal opinion is that we need to look at the reasons that these benefits were introduced and get back to the basics.

Superannuation: (Yes I'm only a few years away from retiring age, so this affects me as well.) The universal superannuation was introduced when the average life span was 72 for men and 75 for women. It was collectable at age 65. This age was later dropped to 60, and then increased back to 65. The average age span is now 78 for men and 80 for women, so I would have no difficulty in seeing the age for universal superannuation raised to 67.

Unemployment: This was introduced so that a working man who for some reason is put off from his job would have a basic income while searching for a new job. It wasn't there as a wage for teenagers leaving school. So lets make this simple. No-one can apply for the dole until they have paid income tax. (ie they have been in paid employment). The amount of time they can be on the dole is limited to 10% of the amount of time that they have been in paid employment. This would stop anyone from coming straight out of school and onto the dole.

DPB: This was introduced to assist the mother who's husband had suddenly departed the marriage. It was to tide her over that difficult period where she couldn't work to support herself while staying home to raise the children. It wasn't designed to allow teenage girls to get pregnant and have the child's future paid for by the taxpayer. So lets make the DPB only payable in those cases where a women has already been in a form of marriage (or civil union) and that relationship has broken up. Sorry girls; if you are only 16 and get pregnant at high school, either put the baby up for adoption, or let your parents pay to raise the child.

oK. I'm ready for the flames."

 

 """Perhaps I am just cold and heartless. But for me its simple.

Work or Die.

You want support? Get married or live at home - why should society be your crutch. You are a man/women of your own decisions........you make bad ones you should be fucked the arse. Not everyone else. It was your decision.

If the govt really wants to help, customize a job for every person. Get the wheelchair enabled behind a desk, the retards picking up rubbish and the mums delivering powerbills. Its not all rocket science.

Max benefit payment made in a row is 5 weeks. That is all the rest of us get before we lose all our money"

 

Lots of errors in that lot....for instance life expectancy has increased but not very much for the poor....so raising the age of entitlement means they work til they drop....sorry but while there needs to be some sort of change I dont think this is it.

Add it that uping the retirement age to 67 for a 30 something still means the BBs today get theirs at 65, and yet its their numbers and expectations that are the problem, while the 30 somethings have huge debt and lower incomes....so for me I'd raise the top tax rate and bank the money aka Cullen fund...to draw down later.

"So lets make the DPB only payable in those cases where a women has already been in a form of marriage (or civil union) and that relationship has broken up."

Totally agree with that one....

"I can't for the life of me see how ANYONE would actually choose to live like that, yet people do that for their whole lives"

Me neither, been there its bloody awful.....

Maybe we need to discover what the possible % of those are and Ive been on the dole myself and know there sure are some like that, but its a minority.....but consider this if we force them into a job and that takes away a job from someone who really wants it and leaves them on the dole, what have we achieved?  In some ways it maybe better to shufle such losers out of the way and spend our time and money on ppl who want to be helped.

regards

"Work or Die"......I think that was Pol Pot's rallying cry to those working in the rice paddies. In the end they died.

This is an important debate, which is probably why politicians (other than the Greens) don't want to talk about it. For me a basic income (of whatever type and there are many different forms) has the following advantages:

- Completely removes the concept of welfare.

- Abolishes superannuation and removes any concept of a retirement age.

- Acknowledges market failure in employment (where unpaid labour is finally recognised and valued: raising children, creating a stable home, caring for the sick, volunteering and community work, as well as research and innovation).

- Simplifies and rebalances the tax system.

- Creates a pathway for government to supply new money into the system.

- Reduces the size and scope of government.

- Provides an option for a new citizens contract (A Participatory Approach).

This concept has been around for 500 years at least. It provides us with a way of reinvigorating our society and economy and is worthy of very serious investigation. I agree very much that the welfare state has created a terrible dependency and a sense of hopelessness amongst many. I work as a mentor and as a budget service advisor. I can assure you it is not pretty down at the lower socio economic levels. There is no sitting around on their arses......there is poverty, indebtedness, poor educational outcomes and very little on offer for many people. There is no simple fix except to start changing the whole system starting with welfare which is a minefield of Kafkaesque proportions. 

Basic income is a way out of this morass. Strcutured properly and with supporting changes elsewhere (early education, family support etc), it can create a major shift forward for our society. 

Kafkaesque is right - couldn't have used a better descriptor.

I'm behind the Big Kahuna for the simple reason that I have seen no other policy proposal with even the remotest possibility of breaking through the poverty trap with positive outcomes.  The Big Kahuna proposal to my mind will revive family and community (as opposed to government) as the greatest influencers in our social behaviour.

One thing for sure what we have isnt working too well.  This is the best idea ive seen in that its pretty fair, covers the least fortunate and gives incentive/reasons to get out and do (earn) more...its also pretty simple and low overhead....sure it isnt perfect and there will be advantaged and dis-advantaged but  its a pretty level playing field....wont happen of course....the two big parties and their die hard supporters will see to that .

regards

If you only get $11,000 and people are struggling now to survive on minimum wage how does a single person survive if they can't get a job?

If Kids get it too doesn't this encourage rampant breeding to maximise income? 

This all only works if people with the capital stay in NZ or keep their capital in NZ.  If the richest take their money and go then the whole thing collapses doesn't it?  Or are they going to stop you taking income out of the country (back to the 80s).  Or if they spend it on luxuries rather than investing, it may earn GST but once its gone there will be no more.

This doesn't encourage saving - is that the agenda to stimulate the economy by spending all your income?  But to spend huge amounts of money involves overseas holidays and expensive imports so that isn't going to help. 

Most new companies make losses in the early years - how will the tax work then ? If you have to pay another tax on your capital invested in it when you are struggling, it doesn't  seem appealing  to set up a new business, especially  when once it is successful you have to pay tax on any capital you build up.

Given only the top few % are in the really rich category and 90% or more are not, maybe it is the 90% that are living to a standard of living that we should be aspiring to. Its still hugely better than most of the world.  I don't know why New Zealanders think they are so special that they deserve to live better than most of the rest of the world.  Perhaps having a roof over your head, food to eat, school and healthcare are all we really need and most people really don't have right to expect all the rest of the trimmings the top 1% of the wordl's rich have.  After all it is not possible that everyone in the world .can live like that.

That's an interesting point about companies in their early years. 

I wouldn't worry about a fire sale to dispose of existing capital though. The only kind of capital that this scheme taxes more heavily than the current one is capital that is less productive than average, and arguably we as a country would want that capital deployed in a more productive way

From what i can see Im coming around to the belief that many of the rich in NZ and indeed much of the world are actually more like parasites.....or maybe leeches, they suck out more than they put in....so the loss is what? not much....If they leave they leave a vacuum to be filled by those willing to fill those niches.....I really odnt see much of an issue.

regards

What you don't seem to see is that many well off people are in that position because of lifestyle choices they make.  They are well off as they have saved/invested their money instead of wasting it all (and wasting the world's resources).  A dollar saved is one less spent on an imported piece of chinese junk.   Many people who are less well off have had equal opportunities but have chosen to spend their money on consumer items.  It is them who have sucked the world's resources dry. 

Other people may not have had the same advantages as they are not as able but could have lived a comfortable plain life if they had spent less on luxuries (smoking, lotto, alcohol, drugs, designer clothes, TVS, cellphones, SKY TV etc).  Their kids could have a better future if they got them to school and encouraged them to get an education.  Fed them breakfast instead of buying a lotto ticket or a packet of cigarettes.  Some of these people are leeches sucking out more than they put in. And if they took more responsibilty for themselves there would be more for the genuinely needy poor or disabled who make every effort to improve their situation.  I don't think any wealthy person begrudges these people support so they can have a comfortable life.

 

 

If you have a company privately owned with expensive plant and you list it and sell off the shares, but buy most yourself how does that work (I'm not an accountant!).

If kids get the $11,000 too it may have the perverse consequence of the fathers of these abandoned kids fighting for custody.  But can they look after them and will they spend the money on the kids?

 Who determines the value of your capital items?  Lots of jobs for valuers?

Is art included? Might lead to a bubble in art prices.

Can you buy a piece of land in Aussie or will the tax apply to overseas assets too?

Can anyone answer my questions please?  Kate, where are you?

If you have a company you already own the shares, why not just invest the money you were going to buy the shares with straight into the business? My understanding is that Morgan's proposal wouldn't tax share investments. The idea is that the proposal wants people to invest in business.

Kids don't get the UBI under the proposal.

It would only be large value capital items, the majority of which would be property. Most other high value capital items are already valued for insurance purposes so no major isues there.

Yes art would be included as far as I know. Who gives a rats backside if there's a bubble in art prices? Anyway the higher the value of the art collection, the more capital gains tax.

If you buy a piece of land in Aussie then I assume you would pay a capital gains tax anyway as aussie already has a CGT on property. I don't think there's any requirement to notify IRD or any other government department if you purchase an asset in another country but I could easily be wrong.

Will GST, FBT etc all still apply?

I assume the agenda here is to make the price of property plummet.  If people sell their properties to buy shares who will supply social housing?

If companies have to pay the  tax on their capital items, the profit will decrease, the dividends will decrease, and the price of shares will decrease. (Price = PV future dividends).

If the value of properties and shares plummet has he taken account the drop in his CGT due to the lower values or is he basing his figures on the current values?  Might need to drop that $11k to $10k

Note to self:  If this shows any sign of being a goer best sell shares now then buy them back cheaper when the price falls, or only buy overseas shares.

 

Yes of course GST, etc would still apply.

The 'agenda' is not to make property prices plummet, it is to ensure everyone pays their fair share of tax by broadening the tax base and to try and reduce inequality whilst addressing many inadequacies of the current welfare system.

'If you own a business that generates an annual EBIT (‘earnings before interest and tax) equal to 6% or more relative to the value of non-current assets, you’ll not be affected by the CCT. Even if you have some poor years but on average you generate 6% you’ll be unaffected (during poor years, you receive a tax credit which you carry forward).

If, however, you own a business which rarely makes a taxable return of 6% (perhaps you’re waiting for capital gains or get some private benefits from the assets), the business will be taxed on the basis that it does. That means you’ll have to fund the new tax out of private income, realise some of the assets, or start running a profitable business. As well, you’ll no longer be able to carry any business losses across to unrelated income (like your wages) – they can only be carried forward.'

Why would the value of property and shares plummet?

Did you even bother to read even a summary of their proposal??

As a libertarian who wants a radical downsize in government, I could support The Big Kahuna as a transitional policy. Better to pay redundant bureaucrats $11,000 in place their current salaries. We would then steadily proceed to close most other government departments. Further reducing the cost of big government enables bringing your 30% tax rate down accordingly.

There is one more thing I would add - a Pay-pal button on the IRD website for the use of all wealthy people who believe the rich should pay more tax so they can put their money where their mouth is. If they are not all hypocrites, then that income means we can get to our goal of no compulsory taxation sooner. After all taking money by force is theft and the number of people who believe they are entitled to play around with other people's hard earned money is the root of most of our problems.

As a libertarian who wants a radical downsize in government, I could support The Big Kahuna as a transitional policy. Better to pay redundant bureaucrats $11,000 in place their current salaries. We would then steadily proceed to close most other government departments. Further reducing the cost of big government enables bringing your 30% tax rate down accordingly.

There is one more thing I would add - a Pay-pal button on the IRD website for the use of all wealthy people who believe the rich should pay more tax so they can put their money where their mouth is. If they are not all hypocrites, then that income means we can get to our goal of no compulsory taxation sooner. After all taking money by force is theft and the number of people who believe they are entitled to play around with other people's hard earned money is the root of most of our problems.

As a non-libertarian, I dont want what you want.....have a nice day.....

:)

Tax is theft is so old hat......simple, if you wish to live in NZ you accept the laws of the country, in which case it isnt theft....its the law....If it means the police turn up at your place and arrest you and take all your posssesions and sell them at auction I have no issue...I'd actually smile....maybe even clap.

regards

Is that the strongest argument you have for compulsory taxation "it's the law"? Surely you can do better than that. Who needs new policy proposals and elections when all the laws/policies we already have world wide should simply be accepted because they are "the law".

What makes anyone think that the law says you must pay income tax. Whenever anyone talks about having to pay income tax I ask them if they've read the income tax act. They haven't, (it's something like 2,500 pages, so i ask why would you hand over a third of your hard earned money to someone without first having looked up the law that says you have to pay it?

If some stranger came up to you in the street and said "you have to give me a third of all your money", you'd tell him to piss off.

I can't understand how people can moan about the income tax they pay yet they haven't even bothered to research the law that may or may not say they have to pay income tax.

Perhaps your questions were too difficult parky. Try dumbing them down. How's the mortgage going by the way?

They answered my questions , some time ago ..... unfortunately , because it was on a video format , I couldn't listen to the answers ....

....... freakingly slow dial-up internet here .....

Who is dumber , the simple one who asks stuff in a straight-forward way , and gets answers  ...... or the smart guy who questions in  riddles , and in return receives only silence ? .....

Take 2 people on $100,000 pa.  One spends nothing much on himself, and has saved $1m in 20 years by paying off 2 $500k houses.

The other spends every cent on overseas travel, consumer goods, and rent. 

The first has paid less GST over the 20 years but when he does eventually cash up and spend it over retirement the GST will be paid on all the gain he has made as well as money has has input.  He will pay for his  age care until his money is down to $190k so saving the government funding it.

The second has paid GST on the money spent (except rent) over the 20 years.  Once he retires he has to apply for the WINZ accommodation grant and visit the foodbank as the pension isn't enough to pay rent and food and power.  He has government funding for his age care once he turns 78 as he has no savings cost the taxpayer $1,200 pw for 5 years. 

Under the big Kahuna the first would have to pay CGT on his capital and the second would pay nothing.  The second has chosen to spend every cent, mostly spending the money on overseas goods and services and now doesn't have to contribute CGT.

How is that equitable??

Fairer would be to tax everyone based on what they could have saved even if they have spent it all on themselves earlier.  Oh yes, that's what we do now and its called income tax.

Its different because there is profit involved.

If he pays $600k initially and sells then for $1m then he should pay on the capital gain as its profit, at Labour's proposed rate 15%? on $400k....certianly not on the $1m.

Lets look at PAYE for a moment.....in effect someone on $100k pays PAYE on all of it....there is no (significant) allowances/ tax deductions?.....The PI on the other hand can claim for expenses?  interest?

regards

Why is it different?  The other person had an equal opportunity to make the same profit but chose to blow the money on a frivolous lifestyle instead of investing it.  Each worked the same hours, paid the same income tax on their salary, 

The PI paid for his aged care which saved the government heaps.  The PI can only claim any expenses against their salary if the rental is making a loss.  If they are making a loss it means their tenants aren't paying the true cost of their accommodation so the landlord is providing a social service that the government would otherwise have to provide, (and at a much cheaper price than the government could as they would have to pay to administer the whole thing).

Why should 2 people with the same advantage in respect of ability to earn have to pay different amounts of tax?  The next step would be to tax us all on our leisure time because we should be more productive with that - those on higher incomes have the potential to earn more and pay more tax so if we don't chose to work full time we should still pay tax as if we did. 

Where does this nonsense stop!!!

Simple, all profit should be taxed.....and it should be taxed equally such that a person invests for the best return and not for the least tax outcome.

The person who invests and earns a profit still enjoys the majority of the extra earnings, it isnt all removed....The that person benefits from an enjoyable old age, the one that spent it all should get the bare necessities in old age...thats teh difference

Nonsense, no its you that are talking nonsense....

regards

I agree that the current paradigm is that all profit should be taxed but just cause that's what happens doesn't mean its right. 

Equal ability, equal income , equal tax.  That's fair.  A person blowing all of their income and not saving is not investing at all.  Why should they not get taxed on 6% of what they would have had if they hadn't squandered it all?

The old person in a home paid by the government gets exactly the same care as one paying for themselves out of their savings so no, they don't benefit from it in old age.

It's also possible that the PI makes a capital loss when they sell up or go bust and the Government ends up paying them benefits anyway. Capital gain isn't guaranteed, it's speculative....

It's different because it's completely different. Person 2 isn't making a capital gain. They're paying income tax to cover their retirement. Their capital isn't being wasted sitting in property, it's being invested in the economy.

You can't tax someone on their ability to earn, they pay income tax on what they earn.  If they choose not to invest their capital then you can hardly tax them on capital gain and they have no capital (it's spent) for the CCT. They also won't have anywhere near as nice retirement as person 1. Stop thinking so much you're starting to create ridiculous arguements/situations. Just look at it simply. At the moment we pay tax on income. Profit from capital gain is income despite what anyone may try and say it isn't. Therefore that income should be taxed to make the tax system fairer.  Stop seeing the proposal as somehow penalizing people in regards to tax. It simply makes everyone pay the exact same rate as everyone else.

maybe we should go back to a window tax, that way the bloke with the houses pays tax on all of his windows and the other guy pays nothing.

The WHOLE current system and also what has been suggested (in most cases here) is to the benefit of ONE group totally.

That group?

BANKS! When the masses must or are encouraged to put themselves into debt to even qualify as "living" then the system is doomed to fail. 

Here's my big Bessie:

Everyone undergoes an IQ/physical capability test (to be invented by some entrepeneur in NZ)  to test every NZer as they reach 16.  Each person is then taxed on their potential to make money not their actual income/profit. This is fair as everyone who isn't reaching their potential is a drain on the economy and they should all be able to reach at least grade 1: able to wipe a toilet seat and pick up rubbish.  Everyone has equal amounts of time therefore ability is the only thing that should determine what tax someone should pay.

 Everyone over 18 gets the $11k payout (maybe more).    If they exceed expectations they get to keep 100% of their earnings and capital over the expected amount.

This incentivises people to work to their potential and take risks as if they don't they lose their $11k and start to owe money.  If they can't find paid employment they have to create a job themselves eg dog walking, window cleaning , car washing, cleaning toilets. There are no WINZ payouts so if you don't work to your potential your family have to bail you out.

 This incentivises parents to get their kids to school and to do their reading, spelling and maths homework with them so they can get a job.  It encourages community and caring for your family.

People who are earning over their expected potential can now use their excess cash to pay others to do their menial tasks for them thus increasing employment opportunities so they can concentrate on dreaming up new schemes to create wealth.

There may be loopholes here but big Bessie only took 10 minutes in the design not 2 decades.

Indeed, it's the fundamental premise of a Marxian economy. 

Hi Kate, can you answer my questions above please if you are able?  You seem to know lots about this topic. Thanks!

LAJ.  I had a look at the questions days ago when posted but the calcs side of the answers would have taken a bit of time.

I meant to refer you to the Q&A section here, so you could cut and paste them;

http://www.gmi.co.nz/bigkahuna/MessageBoard/Thread.aspx?tid=7 

And let us know when the answers are posted, as I'm sure they'd be of interest to many here.

Cheers, Kate

Thanks Kate, I have posted them and will be interested to see what the answers are!

Yes, lots of good questions already in there - and they appear to respond on a regular basis.   

LAJ,

your 'Big Bessie' is a well thought through taking of the mickey, I like it!

Getting back to the big kahuna for a minute, and please forgive me if I have missed something here...

I'm a little confused as to how taking 1.8% (30% of 6%) of wealth that is invested in anything other than risk-less assets (money in the bank/ government bonds etc) is seen as being stimulatory.

Surely the most stimulatory is to say that investors/speculators get to keep all profits from investing in risky assets, after all, they are taking risks, and so should be rewarded with the extra return which is expected (in the long run). That surely is the way to make people want to invest in non riskless assets.

Lets just indulge my argument for a minute while I make my point and say that the government suggested that the risk free rate was to be 50%, instead of 6%.

If I had 10k to invest, I would have the choice of putting that money into a risk free asset, and getting paid 50% interest per year. Or I could take a risk and try to invest that money in something that I think is going to be productive, say a new business idea, or buying better equipment for my farm etc. As soon as I invest that money in a risky asset (and by risky, I just mean anything that is not risk free and exempt the big kahuna 'hole in my bucket' tax), then if I understand things, I would owe 10k*0.5*0.3 = 1.5k in tax. That would be a pretty stiff penalty to pay for taking a risk, so most sensible investors would surely just keep the money in the bank where it is safe, rather than be penalised by the government for taking risks, while at the same time exposing themselves to the uncertainty of investing in a risky asset.

I know that 6% is not the same as 50%, but the principal is the same.

You also get the scenario where if you lose your job, then its a double whammy. You have to dip into your savings to support yourself, but suddenly because you are not paying income tax any more, the government starts dipping into your savings also (if you have them invested in anything apart from super conservative money in the bank).

cheers,

Glyn

Thanks Glyn, I was rather proud of it!

You are right, it discourages risk taking- see my questions above which no one has answered yet.  And the government would be dipping into your savings every year not just if you're not paying tax. 

Unfortunately, although it would be nice(?) if everyone got their share of the wealth in NZ you would find before long some would have spent it all and some would have saved it so we'd be back in the same position.  Look at some of the treaty claims- some tribes have invested and are doing well, others have blown most of it.

Shares aren't included so if you had your money in shares you'd be exempt, except all the capital in the company would be taxed so the dividends would be lower so the share price would drop I think.  Someone tell me am I right here????

The main agenda is to try and get people out of investing in property and investing in shares as that is what Gareth, BH etal are in to.  They have predicted property price drops and it isn't happening so they're trying to give it a nudge.

Protect what you have by relying on your own judgement. Not by relying on what someone else thinks is the answer, as answers to our current economic situation are always a dime a dozen from politicians and economists. Even better still, keep them out of it.

"This is not to defend the current scheme. Morgan is right, it is beyond repair. We need a radical solution, but the answer to a broken social welfare state is not to make everyone a beneficiary."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10750826

and

http://asianinvasion2006.blogspot.com/2011/03/who-is-damien-grant.html

Isn't it great...Key's darling company he reckons will rebuild chch is investing 200 million into China....formica....now don't that make you feel all warm inside.

So when you're deciding on what to have the kitchen bench made from...stone or marble, concrete or timber...oh and plastic...you know which to avoid.