Gareth Morgan finds major support for his Big Kahuna ideas in Thomas Piketty's new blockbuster economic research

Gareth Morgan finds major support for his Big Kahuna ideas in Thomas Piketty's new blockbuster economic research

By Gareth Morgan*

There is an intellectual storm sweeping through the corridors of academia and power in Western countries.

New Zealand will no doubt catch up in time and a good thing too.

It’s a revolution in understanding about inequality, wealth and the role of tax.

In his pioneering 2014 opus, Capital in the 21st Century, French economist Thomas Piketty has come up with a captivating explanation of why the rich are getting richer, why they will continue to get richer and why this is bad news for society.

At the heart of it all lies wealth and especially inherited wealth.

Picketty explains that we can expect wealth to produce returns for its owners that exceed the growth rates of economies and that means inequality will get ever wider over time.

In other words, the income gap between those at the bottom (in the low paying jobs) and those at the top (living off their income from wealth) will grow and grow.

That is a problem because, as the 19th and early 20th centuries show amply, rising economic inequality is typically associated with rising political inequality and escalating social unrest.

Picketty’s primary message is that except under special circumstances the natural tendency of capitalism is to concentrate capital and wealth, rather than to spread it around.

This leads not just to gross inequity but also hampers the ability of capital markets to sustain economic growth. The crutch of the Piketty argument is that productivity gains (due to technology and the like) have both a distributive effect – to move income toward the owners of capital – and an income effect – to raise the income of all, including employees.

However his view is that most commonly the distributive effect is the strongest.

The resulting concentration of wealth risks stifling the growth of effective demand in the economy and with that employment and the wage share of income.

Piketty’s analysis is a direct affront to the neoclassical model which holds that so long as we have competitive markets then the allocation of income and wealth will be relatively stable.

It is this model that has had most of us conventional economists advocating competitive markets over our careers and the trust-busting of concentrated markets.

The counter argument in the main has been that on occasion the gains to national income from economies of scale outweigh the gains from competition, so we can turn a bit of a blind eye to market concentration on occasion.

This can be particularly relevant in a small market like New Zealand where the conditions for full competition cannot always be met.

But the Piketty model confronts the belief that even in large markets competitive conditions will ensure the ability of capitalism to spread the gains from economic growth – commonly called “trickle down” in the vernacular of politics.

Piketty’s thesis is worth taking very seriously because it has a very strong empirical backing.

He unpicks the circumstances underlying the rise and fall of concentrated wealth in developed economies over 200 years of history.

In essence that evidence shows that that special one-off factors such as the two World Wars lead to the dispersion of wealth – the dispersion is the exception, not the norm. In the absence of special factors capitalism leads to a rising concentration of wealth.

Picketty’s solution is an annual tax on wealth. His idea is to collect 1% or 2% from wealth each and every year.

He has a minimum wealth threshold of Euros 1.0 million in mind, so only those really worth something will be caught.

Picketty believes wealth taxes like this are capable of stabilising inequality, essentially because they haul back the (post-tax) returns to capital to match the pace at which the economy is growing.  Picketty’s book has risen to the top of the best sellers – not bad for a 500-odd page economic tome!

In 2011 in the book The Big Kahuna we said that New Zealand should be collecting an annual tax based on capital assets.

We called it the ‘compehensive capital tax’ or CCT. We could equally have called it a wealth tax as our ‘capital’ and Picketty’s ‘wealth’ are essentially the same thing.

The details of our proposal differ from Piketty’s but the end goal is the same.

Our intention was to haul wealth into the tax net too – addressing the fact that our income tax system only recognises regular cash receipts as income yet wealth often produces non-cash (and therefore untaxed) financial returns such as capital gains and in-kind (again untaxed) rewards such as the rent-equivalent of home ownership.

Our proposal amounted to collecting 1.8% of the value of wealth each year using the CCT, taking account of any income tax already paid on the regular cash returns generated by that wealth. It’s worth taking a second to look at the failings of our current tax system.

The standard properties of a good tax are simplicity, equity, neutrality and efficiency.

When GST was first mooted one of the reasons was that it encouraged savings, it was simple and it was very efficient (it was hard to avoid, had low compliance costs and so long as there were no exemptions it had a neutral effect on decision-making).

For an economy that had a deep-seated savings insufficiency GST has largely been regarded as a successful part-substitute for the major revenue-earning tax, income tax. GST enabled the progressivity of income tax to be reduced and one rationale for that was that high income taxes are considered a disincentive to work and effort.

But there are other problems with our main tax type.

Income tax is riddled with inequity because, as we’ve explained, it fails to tax all effective income.

This in turn causes all manner of distortions.

These include manifestly imposing the highest effective tax rate on PAYE income – that’s typically wage earners; distorting investment patterns as investors seek out tax-light options rather than investing where the economic return is greatest; because of the interface with targeted welfare benefits, inflicting prohibitive effective marginal tax rates on people who try to supplement income support with paid work (‘poverty traps’); and despite a flattening of tax rates over recent decades, encouraging income shifting in order to minimise tax payable bringing with it a whole host of costly policing costs.

So all properties of a good tax – simplicity, equity, neutrality and efficiency are violated.

To the popular response that wealth taxes are just another way to milk the rich, it is constructive to consider that those most successful under the status quo, the rich do not typically seek lower taxes.

A recent survey in the US indicated that 67% top 1 percent of American earners support higher income taxes and another study indicates that the richer you are, the more likely you are to support higher tax rates.

Whether that attitude extends to wealth taxes remains to be seen.

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Gareth Morgan is a director of the Morgan Foundation. This article was first published here. It is here with permission.

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Good to see you speaking at the Mana Party conference recently, Gareth. Ironic as it may seem coming from you - your Big Kahuna is the only model (of welfare and taxtation) that I've read about which would truely restore pride, i.e., MANA, to many of the constituents in Te Tai Tokerau - and indeed throughout NZ.  For the first time in NZ's pakeha culture/history, the role of kuia in society would be properly recognised through appropriate remuneration for what they do (and have done for centuries) for the rohe and the whanau.

It's the lack of a direct individual level playing field for all that is the issue. The level playing field is not there because many people do not have the knowledge of all the structures that are used to protect wealth.
 
The advantages and disadvantages occur when:
Someone has a trust entity vs someone who doesn't.
Someone is on a wage or salary vs self-employed, partnerships, Company etc
A business that operates using Charitable Trust vs those who don't.
 
A FDI who has AIL status.
 
The list is endless!
 
If everyone was on the same platform most of the problems wouldn't exist. The wealthy through their own efforts have ensured they have protected their positions. The poor have not protected their positions. Governments all around the world ensure that all the structures and wealth protection mechanisms are in place to protect wealth. It is not compulsory to use these structures - so those in the know use them and those who don't fall through the cracks which allows Politically minded people to pretend they can help those who have fallen through the cracks.
 
Wealthy individuals do not compete they protect. They attend tea parties and make donations.
Morgan misses the point that all markets are live and allow proper transfer if allowed to operate correctly.  Everything has to be individual vs individual or else you get problems like we have now.

To understand why the mainstream finds this proposition so annoying, you have to understand that "distribution" – the polite name for inequality – was thought to be a closed subject. Simon Kuznets, the Belarussian émigré who became a major figure in American economics, used the available data to show that, while societies become more unequal in the first stages of industrialisation, inequality subsides as they achieve maturity. This "Kuznets Curve" had been accepted by most parts of the economics profession until Piketty and his collaborators produced the evidence that it is false.
In fact, the curve goes in exactly the opposite direction: capitalism started out unequal, flattened inequality for much of the 20th century, but is now headed back towards Dickensian levels of inequality worldwide.
 
http://www.theguardian.com/books/2014/apr/28/thomas-piketty-capital-surp...
Let the games begin.........

Why do we tax?
We do it to tax out of the economy money that through our government we spend into the economy.
If we didn't do this- we have inflation quickly roaring away - our dollars becoming worth less and less
Who do we tax/How do we tax them
No real point in taxing people without money- ever increasing GST does not seem to be a good answer- individuals offshore more and more purchases
Ever increasing PAYE does not seem to be a good answer- companies offshore labour
Wealth tax- why not people used to tax windows- I say a land tax -
easy to administer
you can find the land and tax it, you do not care who pays the tax, a corporate, a trust, and offshore entity etc- just as long as the tax is paid.
Little old ladies etc can accrue tax to be taken from their estate- that sounds mean, but it isn't - they are dead.
 

No.   do the research yourself.

You are taxed so businesses and individuals MUST keep their noses to the grindstone, that keeps them to tired and broke to cause trouble, and creates a ratrace to act as a carrot so the drones can wrestle each other for a higher spot in the herd.

Look up Fiat currency for how/why this works.

Unfortunately lies like those you are propogating have become urban & educationally approved myths, and they get repeated by those who believe them, and confirmed by others who have heard the same rumours.

If it was a matter of just "removing currency" that can and is easily done by interest rates by the same banks which create the money numbers, and thus they act as a perfectly good currency sink.

the most obvious example, is if I want to provide a good or service, I must use capital.  to regain my capital investment, I must make enough margin to cover that expenditure.  However, margin after expenses is Net Profit, and taxable.  So that means I must make more margin than my initial cost to break even.   If I hire staff, then I must must recover that expense too....including PAYE which is an expense to the business that the staff don't receive..and thus can't spend (ie to pay them net $10/hr, I must charge $12/hr just on their labour alone).
All those taxes add to the cost and push the price up, CREATING inflation (through devaluation).

The ONLY real way that more free money creates inflation is if supply of service can't meet demand...   OR... if the free money is used for leverage of unlimited credit (and that leverage is wherein lies your problem).   Put credit interest on a non-linear scale (paid in tax for borrowing) and that will ease the problem....but it's your taxation which is creating inflation and destroying the economy and business/job opportunities AND WORSE it's destroying the ability for people to invest in human/world good progress (by increasing cost and reducing disposable income).

Worst it could be wealth taxation. which is a continual loss that has no relation to ability to pay!! (at least Earnings/Net Profit guarantees a little free cash to pay, even if it is PAYE)

This from the guy that thinks rising interest rates increases inflation.

Why are you here cowboy?

Not sure I agree with taxing wealth. Its value is merely an estimate until it has been sold. To achieve 'market value' may require selling off parts at a time, as there simply isn't the liquidity to support it's supposed market value. Case in point - the power companies that were recently floated. Hence it seems foolish to base a tax system on such an unreliable figure.

I own a copy of this frightening publication "The Big Kahuna". I'm always ready to read things I don't agree with but, in this case, I don't think I have every felt such anger burgeoning within. The whole essence typifies, in my view, the smug arrogance of the elite and the battle that the hardworking "little people" have to put in to get ahead. Consider page 176 paragraph 3:
 
"In the event that investors can't generate the cash needed to pay the comprehensive capital tax, they have the option of postponing the payment, although any outstanding balance would incur use-of-money interest and IRD would take its place in the head of the queue with claims against the asset. This way, when the asset is sold, the outstanding CGT balance is payable out of the proceeds".
 
Note it is a tax on unrealised gains. Note it is based on "a minimum rate of return required from the capital (a rate set by goverment)" - page 175 7.6 The CGT. Note it is not a one off tax but it is payable annually. So who would declare how much your home is worth and the tribute thereon? You've guessed it - some snout in the trough bureaucrat. Imagine the elderly - on fixed incomes - scrimping and scraping till in utter despair they have to accept a lien on their modest home or move out altogether. Brilliant - pay the bankers usury to buy your home and then, when you thought it was yours, lose it to the state.
 
The words of Margaret Thatcher are ringing in my ears: "now you know why we fight these people".

In my experience there are two types of people in the world, people whose disgust of governments outweighs their disgust of equivalently large corporations, and people whose disgust of those largest corporations outweighs their disgust of governments. It's a pity that each of them is turned into a footsoldier for the army they hate the least, fighting for the lesser of two evils instead of for themselves.
 
That notwithstanding, what would be your solution to the distribution problem? Or do you already consider wealth to be ideally distributed? You've said some reasonable things here, I'm interested in your view.

.............youre actually doing this already - its called rates.  The govt has shelved off large chunks of former tax payer costs to local council - and you pay for these via your rates.  So the Big kahuna is more of the same, not something entirely new - and you can't manipulate your income via trusts and so forth to dodge.  Bring it on.

Dear Gareth (and other similar folk),

IF you are thinking of taxing wealth because of the problems that have arisen from income taxation then you are going down the wrong path.    Taxing income isn't good, as it reduces tradeability.    Yet taxing wealth because you've already destroyed the income system?  How foolish can you be, you've sucked so much value out of incomes, there's nothing less.  The purpose of income is to build wealth, so what are people going to be paying with?  Why are they going to be building wealth?

You can't make a bad system work by doing even more damage.  Cancer isn't cured by just moving it to a clean organ.

As for your photo.... the guy on bench thinks "jobs are a right"....
Clearly economic education is the first failure of your system.  Where do people like that, and people like you think jobs come from???  Jobs, income, and even business entreprenuerism comes from disposable goods/services/income/wealth to trade.

If the guy wanted a "job", he could just sweep the streets, or go around telling people funny stories, or give free backrubs on the street.   Those can all be _jobs_.
Your public don't even know the difference between the "factory drone" jobs they're been conditioned for, and "income" which is what they actually need.

An outsanding analysis from cowboy and a chilling insight into the real problem. These comments "cut to the chase" because, with governments approaching "peak plunder" in terms of taxes on income, they must now turn to stealing the fruits of earlier income. Never mind those fruits (homes etc) were purchased with after tax income.
 
Rates are indeed an interesting precursor of the proposed old Roman system of "denouncement". People with the monopoly power of the state at their disposal can simply declare you have an asset worth a certain sum (irrespective of market discovery) and then demand tribute upon it. The spoils are then divvied up way beyond legitimate core council activities and the individual ratepayers part therein - just take a look at Christchurch. In the case of the Big Kahuna's wider plans the discerning will see - not some enlightened vision for the future - but the "bread and circus" of the Roman welfare state. In my view it is a manifesto for "mob-ocracy". Rome's hedgemony ended in a dark age as money went in to hiding and people abandoned property in droves because they could no longer pay the taxes. The collapse of Rome's population was ultimately spectacular and Europe did not get back to the same level of sophistication until the Renaissance. As always, history does not repeat but it certainly rhymes.
 
Ultimately, of course, it's all about violence despite our pieties about "social justice" etc. Ever since the sitrrup was invented - and a man could stabilise himself on horseback and thus cut down with a weapon - groups have formed to take property by force. As that wonderful historian the late Lord William Rees Mogg pointed out, the fundamental differences between such groups and govenments are not as great as the respectable population would like to imagine. Go ask the former residents of Diego Garcia, whose home was taken in the 1960s for a B52 bomber base by that bastion of democracy the United States - aided and abetted by that wonderful group of "social justice' advocates the British Labour Party.
 
New Zealand fascinates because it is the one western country that could actually lead and inspire. In my view it needs to do the following: (1) Limit all politicians to no more than two terms in office. (2) End corporate welfare. (3) Take control of our own money creation and give consideration to re-monetizing gold. (4) End our pro-active immigration policy and it's relentless undermining of working class (and increasingly middle-class) incomes. (5) Enshrine property rights in a written consitution. (6) Recognise that human beings are far more than mere units of financial account.

What do you mean by peak plunder? Aren't income taxes lower than ten years ago, let alone fifty?

Absolutely Ben, and NZ now has the second lowest tax burden in the OECD.  It's ideological dribble - you get a lot of it on here.

Absolutely Ben, and NZ now has the second lowest tax burden in the OECD. It's ideological dribble - you get a lot of it on here.

Not from what I've seen with discussions with people from other countries.  Some of us are way up in the top 3 of the world (just below true socialist countries)

Simply concentrating on nominal income tax rates rates plays into the hands of government. What matters is the total tax burden and - very importantly - what the taxpayer gets out of it. Yes, nominal income tax rates are lower in New Zealand than they were in the 1970s. Yet what do you get for that tax? Way back when marginal rates were higher - as in Britain - all sorts of allowances existed. Examples (certainly in the U.K.) would be a married persons tax allowance, tax relief on mortgage payments for the family home, generous tax relief on pension contributions and numerous other mechanisms that effectively lowered the tax burden. If I recall correctly David Thompson in "Selfish Generations - The Ageing of New Zealand's Welfare State" (Bridget Williams Books, 1991) was able to point to a situation of defacto negative income tax during the country's higher income tax era, which would have prevailed around the 50 years back you urge us to consider!
 
Moreover, those conned by the "low tax mantra" seem to have forgotten GST (VAT in the U.K. and elsewhere). Isn't this tax even levied on the absolute essentials of life in "socially progressive New Zealand" - food, heating, medical services etc. Isn't it even levied on rates? Brilliant, a tax on a tax. Study the situation and you will discover that the decline in nominal tax rates has been offset by GST - and remember, all sorts of other levies and imposts have been introduced as well from defacto "school fees" to driving licences that now have to be renewed (with fee, of course) every few years. Study the GST/VAT phenomenon and understand why polictians love inflation despite constantly claiming otherwise. (Inflation, incidentally, has been the biggest single tax over decades now. That is why Kiwis, who used to be able to do quite well on an average sort of wage, are struggling more and more. Similarly in Britain. My dad earned a pretty poor income but could still afford a very nice house in a good area with holidays each year. Today, in my home town, two well above average incomes would not buy that house!).
 
Incidentally, why go back just fifty years? Why not have a look at 1910 when New Zealand moved to a more progressive (10 band) income tax system - ranging from 0% (incomes below 300 Pounds Sterling) to 5.8% (incomes above two thousand Pounds Sterling)? Yes there was a concomitant land tax - and if I could be persuaded that politicians would return to such low levels of income tax and scrap GST then, as a capitalist, I would look favourably. That will never happen though because contemporary politicians are simply incapable of behaving responsibly with other peoples money. Does anyone seriously believe a draconian land tax would be offset by major declines in other taxes? Nonsense, they would not just spend the proceeds - as always they would "gear" the proceeds - to buy votes, provide subsidies to cronies, and to participate in wars etc.

Thanks for the reply CS, it is appreciated. It sounds like it would be worth putting some proper research into total rates of taxation over time. Does such data exist already? If not it strikes me that NZ would be a pretty good place for a pilot study! Too big to write off as statistical noise and too small to be an overwhelming task...
 
I asked you earlier about what you would do, if anything, to change they way we as a society distribute the surplus from work. Could you comment on that too? From the sounds of your writing above you consider distribution less of a problem than various kinds of taxation/market distortion.
 
Cheers,

" Does anyone seriously believe a draconian land tax would be offset by major declines in other taxes? "
 
You have already answered that yourselves.  When GST was introduced, there were major declines in other taxes such as income tax.

sarcasm?

Cowboy - you can lead a horse to water but you can't make it drink. You're far to well informed to be wasting your efforts here on people who are simply not worth your time and effort. 
 

I don't have much in the way of answers, just real tests of the symptoms (and maths).  I hope by getting discussion going that some more clued up folks will take a chance to double-check some of the things they've been told.   That way, either they can correct my assumptions, or they can help froment real progress.   Either option has to be better than the personal glamour of preaching to the choir, no matter how adoring they might be.

Everything points to, provided population doesn't outstrip resource efficiencies, that the wealthy need not lose their lifestyle for others to gain improvement in theirs.   Or, as I said to the MAXcoin cryptocurrency forum, the value of a currency is in it's breadth for trade, not in it's limited depths.  The wider the distribution the more team input, the more capture of value of peoples' lives to something more worthwhile than holding down a park bench or shuffling (ever increasing piles of) paper.

I agree that the income system has been destroyed but I don't see how taxation can be to blame, given that the historical trend of taxation has been down, down, down for the last fifty+ years. Illuminate me!

not down, across. and the burden is split into other names.  or do you think tax went down when the deductions were removed?  Or when GST was introduced? Or ACC split off?  Or how rates going up faster than inflation every year?   ... or how wages move up (but less than inflation) yet the tax thresholds don't go up as fast?
 Or how small things eg fees for Companies Office charging for Registration of Annual Report, keep adding up.

It was good to see the end of Gift Tax to Trusts... but considering the Trust's property is now considered to be the Trustees' property...it would have been hard to keep up the pretense.

With incomes/revenue pretty stagnant (anti-inflation policies), and continually creeping cost rises (fuel, electricity, wages, rates, etc etc etc) the tax burden is also proportional to income and revenue, not to disposable income.   Disposable income is what keeps the economy ticking along.  Taxes have increased, buying power has dropped (how many houses, horses, education courses, or loaves of bread can a wage packet buy? how many hours of light...even with high price new technology light bulbs). costs have gone up.      If costs are up, faster than income, where is the difference going?   Why can I buy less than my parents, despite years of technological improvements - If the pro-tax crowd were right, we would have a growing pool of rich people, and abolished poverty effects..... yet any observation proves this is not the case...yet clearly it's not the workers benefiting from the rising costs, nor from the evidence do the median/mode shareholders appear to be better off.  Production is getting cheap (and lower quality) as a function vs time.    Much of it is the banks, with interest ...but interest (debt) weans off over time (and until then functions like a tax).

Thanks for the reply cowboy, I understand where you're coming from now. Turns out it was just language used differently that was confusing me! : )

I notice several years ago that bureaucrats and others (eg those working beside or above me in the marketing department of a power company) liked to re-label their product and cost.

Taxes are going down.... but levies may have to be recovered.
Cost will reduced...but shipping will be recovered separately (@ 120% difference).
Wages will go up 5%...but we're grandfathering staff so everyone must achieve 130% more, we expect efficiency in reduced communications/meetings.
Rates cost per service offered will go down...but with central government restructuring and policy changes, and lobbyist groups in the community the total cost will go up.

Another area of "Taxation" is with the increasing use of Domestic Purposes Benefit.  Great thing for a parent whose partner leaves them holding the baby...but what about those of us whose partner doesn't want to contibute to the family and walks with kids, or who decides raising kids on a benefit gives her more time to her own interests.   Then the Non-custodial parent, through no choice of their own is paying over 75% of income (before accomodation, and other living costs) to the government...throw in a bit of interest...ouch   (makes hard for reinvestment of capital for development)
 

My own view is that most of the reform should be in our Monetary system.
The incessent growth in Money Supply is one of the biggest reason for the concentration of wealth in fewer and fewer hands.
If money supply grows by 6%/ yr.....   and average wages grow by 3%/yr...  it is not hard to see how standards of living are reduced..
AND... with the principle of exponents .... and some point in time the disparity becomes insanely obvious.
I've always liked this riddle in explaining exponential growth.
If a jar has 2 bacteria in it  ( 1 pm ) and that bacteria doubles in quantity every minute.... and say the jar is completely full at 10 pm....    When was the jar half full...???
 

average wage.....   <---- there's your error.

If money supply goes by 6%...and all those in the lower quartile of income grow by 9%...

what will be the resulting standard of living?

 
Talking about waqes I presume you are not one of the 80% of the farmers who is breaching employment laws in New Zealand. As I have said in earlier posts farmers generally hate paying tax and they  make their money on the backs of poorly treated and poorly paid workers. No wonder they have to go overseas to get workers who are so desparate they will work for farmers in New Zealand even though the conditions are poor. Only so  many locals are willing to put up with such treatment and many of them give up farming eventually because of the way they were treated.
 

URL to backuup your claim that 80% of farmers are breaching employment laws, gordon?
Fact: Dairy farm workers lodged 200 complaints against their employers from August 2012 to December 2013, including 13 from the Bay of Plenty. There are 35,000 employees employed on farms, not including the self employed. 
http://www.nzherald.co.nz/bay-of-plenty-times/news/article.cfm?c_id=1503...

Actually I'm definately one of the 80%.
I don't have time clocks, and the temporary contracts weren't approved by HR or fully written contracts simply because the contracts didn't have the value to make that kind of workload for me to research and write them.  So I pay an agreed daily rate, for an ambigious level of work.

 I keep getting asked for more days, and for extra jobs by the same people so I assume it can't be that bad.  But yes, the level of government and corporate interference is one of the reasons I'm getting out (or not bothering about pursuing the raising of the extra buyout funds)

While I'd be surprised if many NZers think that farming staff are anything but poorly paid, I'd be very surprised if there was such a wide scale breach.
Evidence?
I'll agree on NZers not wanting to do the work because of teh poor pay, sure, and I'll agree that means we imprt staff which is wrong, sure.
regards

It's a breach because farm staff are paid per day or per week, not per hour.
Which suits everyone except the government.  

Also the farm jobs aren't specialised because normally 1 to 4 staff have to do the entire operation (as skills permit) and have to deal with every conceivable emergency.  And since many farm people do farming because they loathe and despise the paper chase/office work it's not uncommon to have no or few details in writing.  that leads to abuses, but the ones with contracts that get abused don't get in the media

Lets not ever forget that the State spends your and my money far less carefully that you or I ever do.
In fact the state spends money recklessly at times , simply becasue it does not have to earn it , just get you to pay it
Its for that reason I am opposed to paying any more tax, or new taxes , or anything of that sort.

But does anybody really think that what we have in New Zealand is capitalism?  Of course it isn't.  It's a mixed system, part capitalist part redistributive.   Pre-tax income inequality levels in New Zealand aren't excessive, and they are considerably tempered by the tax and welfare system we already have in place.  Piketty is writing about the globe as a whole and if we were to implement a genuinely global wealth redistribution I do not believe one single person in New Zealand would be a net gainer.

They might be tempered from where you're sitting, but they aren't from where I've walked for most of my life,

An imagined conversation between the owners of this fair InterWebs site (INT for short), and the IRAWTC (Inland Revenue and Wealth Taxerating Commissariat), IRA for short:
 
IRA:  Well, this fair site has a wide readership, occasionally intelligent and coherent comment streams, experienced editors and a long-suffering Moderator.  We assess it's Current Financial Year Tax Value to be $20,007,500 and your Annual Wealth tax at our Guru's Rate of 1.8% is (swipes at an iPad) is hereby $360,135.
 
INT:  (swallows nervously, consults asset register) - well, our current financial value, including servers and goodwill, seems to us to be $50,750 according to our recently filed Companies Office return.  How in the Seven Gods' names do you come up with $20,007,500, and BTW, WTF is that $7,500 tacked on the end for, anyways?
 
IRA: (sweetly) Well, our empowering Act says right here in purple ink that
"in circumstances where assets are not physical but where value nevertheless resides in the Brownian movement of molecules, the pulsing of electrons, or the fusion or (as the case may be) splitting of atoms, the IRAWTC (assisted by the Crown Instutite for Nuclear Physics and Particles too Small to see with a microscope or are They Waves) is empowered to assess the fair value of such actions, and such determination is deemed to be final".  
So, to come right to the point, that's what we think, you cannot challenge it as your case clearly falls within the 'pulsing of Electrons' phrase, the Institute agrees (as they invariably do as we allow them a minor ticket-clip) and we have already allowed a substantial discount for those many, many threads where Heat rather than Light seems to be generated for no good reason, and a negative 'Brownian Motion' Quotient has accordingly been deemed.  What say you to That, my Dark Lords of the InterWebs?
 
INT:  Well, what Can one say in such circumstances, except - Squire, my Crossbow, if you will.....winch them chains tight, and let's hope the Wildfire ignites This time....or else there will be nothing else for it but to pay the Pyromancers the Minimum Living Wage.

A Look at our place in the world, suggests we are lighty taxed at the mo.
 
http://en.wikipedia.org/wiki/List_of_countries_by_tax_rates
 
If you then sort by Individual Max tax rate, youll note NZ is a loooong way down at 33%.
UK , Germany, China @ 45%

Don't forget to include the other forms of tax such as levies, rates and GST.  (on top of customer fees and recoveries)

Our sales tax is also not high.  On top of the 45% income tax in germany you pay 19% VAT, unless you are buying essentials like beer, for which VAT is only 7%.
 
VAT in china is 17%

.

Oh and 10% goes to run the state pension too (in germany) + 10% employer contribution. (up to a maximum contribution limit)
 
Despite these high taxes, Germany is one of the most successfull economies in the world, a real counterpoint to the USA way of doing things.

Germany has been living off a merchantile economy based on other Europrean countries that thought they could spend Euro's like local currencies.

Father of capitalism Adam Smith was in favour of land tax and especially inheritance tax  ie unearned income. These are the two taxes that the wealthy, especially the old money, have worked so hard (and successfully) to reduce over the last century in favour of income tax on the middle and working class. Where's the meritocracy in inherited assets?

WTF - it is mainly work that produces wealth......and not all wealth produces work.
 
 
 

The meritocracy is the problem, you know the Tony Blair types.
http://www.amazon.com/Rise-Meritocracy-Classics-Organization-Management/...

Depends whether you believe people are motivated by the desire to leave wealth to their children.  I would imagine most of us would find the thought of being able to leave something for our children's benefit after we're gone, rather more motivating than working in order to leave something for Government to spend, probably inefficiently, on complete strangers.
 
You call it "unearned income" - but the wealth would have been  "earned" by their parents, and taxed while it was being made.  There's your meritocracy - on the supplying rather than the receiving end of bequests.  Do you blame parents for putting their children's welfare ahead of other people's?
 
Certainly the children of wealthy people are more lucky, rather than more deserving, than other people.  Welcome to life - chance happens, some people are lucky sometimes.  Do you propose also to tax, or otherwise level the uneven playing field caused by, the fact that some people are better looking or more talented than others?  
 
 
 

Certainly the children of wealthy people are more lucky, rather than more deserving, than other people.  Welcome to life - chance happens, some people are lucky sometimes.
 
Agree. You can't level the playing field completely. What annoys me is how many discount their "luck" and instead claim they are more meritorious or deserving. Many of the world's greatest fortunes have been made by dubious means, unethical if not outright illegal. Their descendents are fully undeserving of their inherited windfall and in no position to cast aspersions on the "shortcomings" of the less wealthy. There is nothing wrong with wanting to leave your children something as long as it is done without smugness towards others and the indoctrination of the said children with a sense of moral superiority

Yes - a lot of wealth which is held by old families, was more likely than not obtained by dubious means.
Another example of unfairly made gains, are the new billionnaires who were created by the wave of selling state assets in both South America during the 80s and in Russia during the 90's - I doubt very much that the majority of those transactions were done properly, above board, by he book, and in favour of their nations citizens.....
 

Yup, these are issues which have immediate relevance to the wellbeing of New Zealanders and should strongly inform New Zealand policy decisions.

We had the creation of our own little band of "oligarchs" with the asset sales during the fourth Labour Government. I would argue we are still recovering from those. A certain wealthy benefactor of the ACT Party sums up their self righteous, smug, greedy attitude perfectly. Right cnnections, at the right place, at the right time

Merely pointing out that it's not simply a case of "sometimes people are more lucky than others", as you stated.
And yes - I do believe that as a society we should have a discussion how wealth is created, at what  (or whose) cost, how it is taxed (if at all).
And policy should be made which is in the interest of the greatest part of a nation's citizens. Isn't that democracy?
 

To undertake that discussion, you'll need to have agreement on just what right or need there is to Taxation in the first place, otherwise it's just theft or extortion.

Then following that, just where the boundaries lie for what is acceptable taxation and what is not.  Again "Mob Rule" is just violent extortion of the might of the majority on the minority (or their paid lapdogs/profiteers)

Cowboy - it is for the reasons you identify above that I have become very staunch on constitutional rights........and people who say there is no corruption -  may well be the biggest liars or simply get around in a state of ignorance or both.
 
If mainstream media were any good they would be all over the top of constitutional rights and they would be creating debate at every level on every topic.

Right, so your proposal is to tax all inheritance on the basis of your perception that many inheritors of wealth claim wrongly to be meritorious and deserving - I'd be interested to know the precise nature of the evidence for that - or is the idea to tax only unappreciative people, not those who are able to demonstrate a suitable level of humility and gratitude?

There is a range between "leave something for our children's benefit", "leave nothing", and "leave so much that people can use the power of their inherited wealth to tilt the econmic playing field for themselves".

Indeed. By all accounts a reprehensible personality on any level. Australia seems to have more than its fair share of cringe worthy billionaires

Yup, life can be a b*tch.   So what?  Do you think it a Government responsibility to make sure that good fortune only happens to nice people?

I can certainly be of the opinion that a representative democracy should treat all it's citizen equally, and that because you inherited money that fact does not grant you more influence on public policy.
 

I'm of the opinion is that public government funding should be limited to more cost-orientated central governance activities.

Public services and general infrastructure should be "next ring out" from those core services; and funded for that basis.

Social and development policies "next ring futher", and funding also at the futher distance.

It would make less of a "plum pudding" for some of the oversight and committees, and enable wages and overheads to be appropriately managed rather than the "always full taxpayer trough" approach used today.

Local services being tied to councils and indirectly taxed on those using services, and those in the service area.  But as the "fourth ring of hell" I'd like to see them have more rights to put pressure on government regarding the appropriateness of some of the mandates they're forced to endure/fund.

By lowering the impact, then less influence will occur, less wealth will need to be stolen, and the more value it will be to assist multi-generational development for ALL NZ families (perhaps through an extension of the kiwisaver scheme...although Public Trust systems are notorious for bureaucratic ass covering and paying themselves first)

Also some assets like farms benefit from an intergenerational view. I don't think my atitude towards my farm would be healthy, if I new when I died the government would take it.
 Same goes for other assets it would distort the market, people would invest in gold coins etc., that would not attact the attention of the government.
 It comes back tpo creating the right environment for individuals to flouish.
 My children are all different, they will all get an inheritence but as I've five of the little buggers it won't be huge. Without it how the hell would they ever buy a house today, or save to get into a business? The assets pooled over generations of my family will wash away, hopefully to be rebuilt again by desendants leading  full and happy lives.
 Im hoping the education I've given my children, will lead to them giving their children a good rounded education, its the only real wealth Im counting on.

Arguably, the only reason you have a farm (unless you come from the top 100 families or similar) is the breakup of the estates in the 1890s. I'd say these days it is the corporates and banks occupying a very similar level of power as the estate holders did then.

Fully agree Andrewj......attitude is also frequently an intergenerational issue and I'm sure your children will be fine as they are highly likely to have inherited a good one and no bugger can tax that. Mind you they do tax the fruits of that attitude.

I (and others) have found that current educational systems are more "consumer product" orientated (ie something to sell to the gullible), than true wealth.

We didn't send our children to school, until we got to the States, thinking about schools here too.
 Thinking about taking our youngest out of the system and into the local Poly tech

The local schools are getting worse.  Far too much "cram them into the workers' paradise" mentality, not enough option for those with different learning styles.  Far too much external control by volume of cirriculum and not enough "learning to learn".... that and age old problem of teachers being the social servant of the most disruptive students.

Smith's "unearned income" is what would now be known as "rentier's net profit".
His "earner"/earnings is pre-machine (industrial) age, so major of workers were labours or investing in labour tools (ie trades, or professionals hand tools).

"unearned income" would be rents, repackaging (bulk-retail), storage, ursary, levies/duties/tithes, style incomes... most notably for our purposes they constitute non-time dependent income...passive streams that can be stacked without personal limit.

If people were truly motivated to leave wealth to their children, maybe they'd do something about climate change. I'd gladly trade in all my inheritances for a stable climate.

You might want to start by producing less BS.  Afterall not seeing any proof you're spending those inheritances for science factilities to reduce methane emissions or improving vehicle carbon footprints, or giving away PV panels/installs.

Life is tough down on the farm...not just because the money is bad, but because we have to actually make happen what our lips and brains want... you can't just buy a bag of "stable climate" off the shelf, a consultants' report doesn't just magically fix the problem or leverage away the significance.

_You_ actually have to get your hands dirty if you really want things to be better.

Fortunately for me, my family are still alive and well! But if I had some then PV would be near the top of my list... assuming I have any property by then. Maybe I could put them in PV or electric car shares if I don't.

Land tax. I'm not sure the DOC can ratchet up hut fees enough to cover that. It reminds me of the article a while back about MFAT being forced to sell up residences that had strategically been acquired over time in central locations around some of the worlds various capital cities. This the result of EVA being introduced to SOE reporting and all these highly valued properties now in an instant becoming poor value propositions.
 
So, a land tax. Will that not just corral everything over time towards being revenue producing somewhow? How does that sit with the current mix of land allocated in NZ to various purposes? Including unmeasurable aesthetic purposes. You know, the sort of value that accountants hate because its really hard to put a $ value on it.

This sort of grates - you don't really ever own your own home. You get to live in it as long as you can work to pay the tax. Get sick, retire or lose your job etc. then the government or super wealthy (like Gareth) will swoop in and take it.  For the the wealthy it's an income producing asset so the tax is not an issue. Rates at 0.25% seems diffrerent in that it relates directly to services provided (however well one considers that is done).
 
Interesting to know how this relates to the UN declaration human rights which NZ is signitory to:
 

Article 17.

  • (1) Everyone has the right to own property alone as well as in association with others.
  • (2) No one shall be arbitrarily deprived of his [her] property.

 

Would need the 1 million Euro threshold inflation adjusted too.

hmmm. looks like that "human right" of yours' is an asset, one of value.
Our department will notify you shortly of the tax you owe in order to exercise that "right" in our free country.

And the Bill of Rights Act 1688 states:

Subjects' liberties to be allowed

  • Now, in pursuance of the premisses, the said Lords Spiritual and Temporal, and Commons, in Parliament assembled, for the ratifying, confirming, and establishing the said declaration, and the articles, clauses, matters, and things therein contained, by the force of a law made in due form by authority of Parliament, do pray that it may be declared and enacted that all and singular the rights and liberties asserted and claimed in the said declaration are the true, ancient, and indubitable rights and liberties of the people of this kingdom, and so shall be esteemed, allowed, adjudged, deemed, and taken to be, and that all and every the particulars aforesaid shall be firmly and strictly held and observed, as they are expressed in the said declaration; and all officers and Ministers whatsoever shall serve their Majesties and their successors according to the same in all times to come:
     
    And the Offices and MInisters do not comply with this.

 

Bill of Rights 1688....more

Frequent Parliaments

  • And that for redress of all grievances, and for the amending, strengthening, and preserving of the laws, Parliaments ought to be held frequently:

    And they do claim, demand, and insist upon all and singular the premisses, as their undoubted rights and liberties; and that no declarations, judgments, doings, or proceedings, to the prejudice of the people in any of the said premisses, ought in any wise to be drawn hereafter into consequence or example, to which demand of their rights they are particularly encouraged by the declaration of His Highness the Prince of Orange, as being the only means for obtaining a full redress and remedy therein:
     
    Don't see too many Politicians doing their job....and how can we trust any of them to redress all grievances when they are all having their little tea parties.

 

I like the "Tobin", financial transaction tax ideas best. Only the Mana party seem to be pushing it though and I'm unlikely to vote for them.

And Jim Andertons Alliance 

Same deal....here too.
A lot of wealth being handed out on a plate....or in the Royal Mail.
 
Like Genesis, like the Royalties...did you get your fair shares...probably not...but someone did.
http://www.theguardian.com/commentisfree/2014/apr/30/royal-mail-sale-lac...
 

Shock, horror. Highly educated French intellectual concludes the wealthy are the problem and the State should confiscate their property. Who would have thought?
 
It's not exactly new, and it is held to be one reason the Industrial Revolution happened in England not France. The French entrepreneurs moved to London.
 

It seems the same idea set up Switzerland too:
Gold is also the most liquid and transportable wealth protection in time and space. In case of war or revolution, it is hard to flee with one’s property or other valuable assets as can be done with gold. In 1685, when the Nantes Edict was revoked by Louis XIV, Protestants were definitely denied their religious rights. This led most of the Huguenots to flee to the European Protestant countries, such as Switzerland.
http://www.zerohedge.com/news/2014-05-03/switzerland%E2%80%99s-role-gold...
 
Central planning always sounds so much better to an intellectual. None of this nasty dirty business and, ugh, yuk, commerce. I mean imagine having to sell things for a living. How demeaning.
 

Disclaimer. First off I haven't read any of the above.  Lazy Sunday, maybe later.
Why are wage and salary earners taxed on gross while others are taxed on net? Yes I'm selfemployed so understand how it happens but not so sure it's equitable.

because wage and salary earners don't have deductibles, (by definition).

the rule goes that a wage earners equipment/skill is there own property and belongings by choice, so they are personal consumables.   That's why business owners are expected to pay for everything for their employees to do the job, and suitable reimburse for skills/intangibles.

If a wage earner has valid claim for expenses that are clearly not personal use/gain, then they can treat it as a sole trader enterprise and take the deductions there.  But worth checking with IRD & qualified accountant first.

As gordon pointed out a few weeks back, you only get your deductibles on the investment property, not the one you owner-occupy.  for same reasons that wages/salary earners don't get direct deductions.

nope.

Have you filled out an IR3R lately/last few years?

The Rentals section is quite separate from the wage and salary earners.  this is because operating an investment property is a sole trader operation.  It isn't actually part of the wage/salary earners direct activity.

The classic example of direct earner deduction was trade magazine subscriptions, union or industry body fees and IIRC, workplace specific clothing.
  But far more "subscriptions" were being claimed than magazines were being sold, and it only took into account subscriptions (and newspapers) not off the shelf.  The union fees were compulsory so were pretty much just dealt with by a few dollars adjustment rebate/tax-rate. And things like workplace clothing and tools couldn't be guaranteed not to be used solely for work.  In the end it was much more effective to clean up the tax system, and those operating other activities can declare those separately....eg rentals or income producing hobbies.