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Terry Baucher looks into what the agenda should be for a tax working group, who the group's members could be, and whose interests they should consider

Terry Baucher looks into what the agenda should be for a tax working group, who the group's members could be, and whose interests they should consider

By Terry Baucher*

If Labour forms the next government after this weekend’s election as part of establishing its promised tax working group it will need to consider three key issues: The group’s terms of reference, a likely timeline and its membership.

Although as Michael Reddell noted Labour has now taken off the tax review table a number of issues he also pointed out quite a few topics remain beside the vexed issue of a capital gains tax.  

I believe the terms of reference for any tax working group should include:

►reviewing the under-taxation of capital and the over-taxation of savings;

►the interaction of tax and social assistance such as working for families’ tax credits and the issue of high effective marginal tax rates;

►the taxation of multinationals; and

►the role of “environmental” taxes such as the Green Party’s mooted Carbon Tax and the Labour Party’s controversial Water Tax.

Coincidentally, these topics are similar to those covered by the terms of reference of the McLeod Review in 2001. Its terms of reference announced in July 2000 covered four main questions: 

“whether the tax system can be fairer in its role of redistributing income;

how the tax system can be designed to encourage desirable conduct such as work and saving and to discourage such undesirable behaviour as the wasteful use of non-renewable resources;

how the level of tax that is reasonably required by the Government for the provision of essential social services can be achieved reliably in the medium and long term; and

whether the tax system and tax rates need to be modified in light of new technology and international competition.”

By contrast, the Victoria University of Wellington Tax Working Group (the VUW TWG) formed in May 2009 had a much more limited brief. It was to “consider the medium-term direction of the tax system, including assessing policy options.” 

As a result of its more limited scope (and resources, all the members of the VUW TWG volunteered their time although they were reimbursed their travel expenses), the VUW TWG’s final report in January 2010 passed over making recommendations on environmental taxes as being beyond its scope.

Any new tax working group should not be so prescribed. In fact, if the intention is to put the group’s recommendations to the electorate in the 2020 election, it would make sense to include in the review everything previously excluded, such as a land tax and/or capital gains tax on the family home.  

Labour has not renounced its commitment to the “broad-base, low rate” principle which has governed New Zealand’s tax policy for the last 30 years. A significant broadening of the tax base such as a comprehensive land tax or a capital gains tax could be part of a revenue-neutral package which lowered income tax and GST rates. 

One thing I would not expect any tax review group to recommend would be introducing exemptions from GST such as the zero-rating of fresh fruit and vegetables.  Although such proposals are well meant, proponents gloss over the problems from the many definitional issues involved.  

Both the McLeod Review and the VUW TWG opposed the introduction of any GST exemptions and I expect a new tax review group to follow their example. In my view, it would be better to go for an across the board cut in the rate of GST. 

As for a process and timeline, assuming the group’s brief is to undertake a comprehensive review of the tax system then maybe the process followed by the McLeod Review in 2001 would be appropriate. Its terms of reference were announced in July 2000 with the membership of the group revealed in October. The tax review team met for the first time on 3rd November and on 19th December called for public submissions. An issues paper incorporating the 100 submissions received was released in June 2001 before the final report was released on 24th October 2001. 

Following the example of the McLeod Review, if the terms of reference and membership of the tax review group are announced by the end of the year, then it’s likely to be late 2018 at the earliest before the final recommendations are released.  Allowing time for the Government to consider the group’s recommendations, any relevant legislation would probably be introduced in the latter part of 2019. Such legislation could probably take force from the start of the 2020-2021 tax year on 1st April 2020. 

As for the membership of the tax review group, you wouldn’t go far wrong if you followed the suggestions of former Inland Revenue and Treasury policy advisor Andrea Black. (Andrea would be one of my first picks with the hope that the report was written in the style of her entertaining and informative blog).  Apart from an under-representation of women, a criticism of the membership of the last two tax reviews is that they were perhaps too dominated by the large law and accounting firms. 

It’s therefore important that there’s also representation from organisations such as the Accountants and Tax Agents Institute of New Zealand and the NZ Bookkeepers Association who deal regularly with the SMEs which form the bulk of businesses in New Zealand. Given the problems of the interaction of tax and social welfare assistance I think its imperative someone like Susan St John of Auckland University with practical experience of this issue is a member.   

The VUW TWG remarked in its final report, “tax reform should be viewed as a long-term or quasi-constitutional exercise”.

It therefore recommended the Government consider;

“institutional arrangements for ensuring the New Zealand tax system has a stronger focus on achieving and sustaining coherence, integrity, efficiency and fairness.”

As part of this the VUW TWG suggested the establishment of something similar to the Australian Board of Taxation. This is a non-statutory advisory body which advises the Australian Government on the development and implementation of taxation legislation and the ongoing operation of the Australian tax system.

This recommendation wasn’t followed but it’s something a new tax working group should consider. (For more on a possible New Zealand Board of Taxation see chapters seven and eight of Tax and Fairness by Deborah Russell and myself).

In the absence of something like a Board of Taxation, regular tax reviews should be a feature of any democracy. They should act as a sort of conscience for governments by pointing out some politically inconvenient facts about distortions in the tax system. If Labour does form the next Government it will be interesting to see how it reacts to the findings of a tax working group.

*Terry Baucher is an Auckland-based tax specialist and head of Baucher Consulting. You can contact him here »

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Gareth Morgan's book The Big Kahuna really nails these issues. The comprehensive capital tax would bring all capital into the tax net, including capital owned by multinationals. The flat tax (at approx 30%) would apply to ALL income and capital, removing tax loopholes such as trusts. The UBI in combination with the flat tax would act as a natural replacement to both unemployment benefits and working for families (without the need for WINZ!), while the flat tax means that EVERYONE faces the same marginal tax rate no matter their income and wealth.

It really is impressive and I hope that TOP get into parliament.

What I don't understand about the TOP tax is say you own a house and stop working (through sickness, redundancy, retirement or change work to a low/no income). Then you still have to keep paying the capital tax as your only income is the UBI so you lose your house to pay the tax?

The UBI would cover the tax on a house with equity of $1.33m.

If you are retired, you are able to record the capital tax interest-free against your property for payment when you die. Feasibly, there could also be similar exceptions for times of hardship.

Thanks - as I thought you keep working or lose your house.

No, the beneficiaries of your estate lose the house. TOP's biggest legacy might be returning a National Goverment into power as a vote for them is wasted.

Well, that's the National party line anyway. I think it is better to have more ideas in the conversation rather than two types of ideology..

The way I see it Labour-Green-Maori are in with plenty of votes to "waste" on TOP policies that are obviously hitting their target.

What happens now if you lose your job and can't pay your rates?

I have a few neighbours who own their houses but are either retired or unemployed. They struggle to pay $2K pa rates, but can just manage it (and they directly get stuff for it like rubbish collected). If they had to pay $20K pa they would not cope.

$20k pa implies $1.3m equity at 1.5% tax. However:

1. If implemented, the equity tax would be incremented in and it is very likely that they would never reach the full 1.5% tax because the desired cooling of the housing market would likely be achieved at a much smaller rate (or even on the expectation of an equity tax).

2. As mentioned elsewhere, retired people would not have to pay the tax until they died. In the meantime the tax would be implemented as an interest-free reverse-mortgage with the IRD. A 1.5% tax implies about a 30% reduction in equity after 25 years.

This is correct. See below regrading the risk-free return rate. I used 5% as an example as this is the rate currently used by FIF.

Also note for retirees that if their property is increasing in value by more than 1.5% a year then the equity is still increasing.

The current risk free return is nowhere near 5% so this aspect need an overhaul perhaps 2% is nearer the mark but of course Govts use this kind of fiscal drag to hide its effect.

Government bond rates are considered as the proxy for risk-free return. So likely around 3%.

Will there be an allowance to apply for a top-up of UBI to pay for living costs too (rates, utilities, food etc). Assuming the tax could consume all of the UBI in some cases?

Kiwimm.... Are you sure the accumulated tax liability is interest free..??

I assumed the IRD would charge a "use of money" interest rate..??

Yes, it would be an interest-free reverse-mortgage with the IRD.

yes, it has been confirmed by TOP. This means that you would never lose the home, only ever a % of the value (as it accumulates, your equity decreases). After 40 years at 1.5%, you would still have 55% of the value remaining even without further capital gain.

So the tax is effectively an inheritance tax.

Only if you are housing rich and cash poor in retirement and unwilling to redress that balance.

It is a better position than rates, these accumulate with interest on the property if not paid and after a few years, the house can be sold out from under you.

Really - if you had a flat rate of tax of 30% on all income and capital, most of the population would be out on the street within 3 years, those that stuck around of course, anyone with a few smarts that could bend over and put their running shoes on would be off to AU with their capital PDQ

You forget that it would be in combination with a UBI of ~$11,000 pa. That gives an effective tax rate very similar to our current tax brackets for higher earners (actually lower, as some of the tax burden would be shifted to home equity). Those earning less than ~$38,000 pa (and no equity) would have a negative effective tax rate.

"Out on street". What a joke.

The tax is the capital * minimum rate of return/actual return (whichever is larger) * personal tax rate. Note that under this regime, personal tax rates are expected to reduce by 30% (e.g. from 33% to 23%).

So a house with $1m of equity with a deemed rate of return of 3%, taxed at 23% would be $6,900/year (0.69% of its value), less if you pay tax at a lower rate.

Also note that due to the income tax reduction, if you earn more than $69,000/year then you would end up paying less tax overall.

I think it is even simpler.

Stop increasing taxes on the same 1 million working middle class citizens, that pay the bulk of PAYE.
Start increasing taxes on the Corporates, foreign trusts, non-citizens, and other entities.

The problem being that big corporates and high net-worth individuals are internationally mobile. They can jurisdiction shop for the sweetest deal, so all that increasing taxes on them achieves is pushing them and some of the employment and tax that they pay offshore. You might feel that is morally correct, but it is a pragmatic failure to do what is best for the country and actually lowers the tax take for no real benefit to NZ. Low business taxes and low taxes on high net worth individuals are much better for the future prosperity of tiny and isolated country of NZ.

So international companies would give up on the NZ market because their profits are not quite as good as they could have been?

Business by definition needs customers. NZ has some. Business will not disappear if tax settings are changed.

You can never win the race for the lowest tax for corporate HQ locations and funneling profits for tax minimisation. There will always be a country willing to go lower. But that should not be what we are aiming for as a country, encouraging tax cheats. Also international tax laws will eventually catch up anyway, when governments are pressured into action by their citizens and their declining tax take.

"Reviewing the under-taxation of capital and the over-taxation of savings;"
With that simple sentence Terry Baucher shows his Left Wing bias.
If he was genuinely independent that sentence should have read:
"Reviewing whether capital gains should be subject to tax and whether the current taxation on savings is fair"
More evidence that the Media in all its forms is incapable of delivering a fair and balanced view on any matter.
It should also be noted that a simple google search of Terry Baucher will reveal his leftist views on taxation matters. Hence his opinions should be discarded as incapable of being taken as impartial.

Investment property tax paid as a percentage of capital is 9 times lower than Kiwisaver. If you can't see this as a distortion, please remove you privilege glasses.

Taxation of capital is a non-starter, and other than one nascent party that hopes to become a viable party, nobody is currently wanting to tax capital. Taxing capital gains on the other hand... On the same note, there is no taxation of savings. There is taxation on the interese earned on savings.

The usage of fuzzy and inaccurate language reduces the validity of the arguments put forward in my view.

For the record, I am in favor of both the institution of a wide ranging CGT as well as the reduction of taxation on savings interest earned so I'd be in favor of the discussion if it in fact is the discussion of taxation of gains instead of a simple tax on static wealth. And, for the record, I'd not place myself on either the left or right. I'm a social liberal and fiscal conservative, which doesn't align well with any of the parties...

The problem with taxing capital gains is the complexity of administration It would also need to be enforceable on the "sale" at death to prevent inter-generational tax avoidance.

A smaller, ongoing tax on capital is much easier to administer as evidenced by the current FIF regime already in place. Note that it (the TOP capital tax) is also only a gain on net capital, not capital value. It also has the benefit of taxing unproductive capital and forcing it to flow to more productive sources which, for a low productivity country like NZ, is a positive move.

" current FIF regime already in place. Note that it is also only a gain on net capital, not capital value. " - completely false ; you have no idea what you are talking about ( yet again .. ) . Study up a bit.

The net capital refers to the new TOP capital tax (the subject), not the FIF tax (the object). FIF allows interest deduction. Have updated it above to avoid confusion.

I did a lot of studying for my chartered accountant tax exams :)

The link you provides a quick look at the various aspects of implementing a CGT. I didn't see where it put forward any conclusions as to the lack of viability in instituting a CGT.

The concept of taxing static capital has unintended consequences. Do we really wish to discourage savings? One of the big problems in NZ is the lack of savings. Many people here do not plan for the future, and taxing savings will strongly encourage this unfortunate behavior. I'm not certain that one should be encouraging an increase in the consumer economy which a wealth tax does. For the top 1%, it encourages investment in more productive resources. For the other 99%, it discourages savings. Unintended consequences are rife in a static capital tax.

Taxing unproductive capital will make people move their money to more productive sources. TOP have talked about the rate of the tax to be set at the risk-free rate of return for which government bonds are a proxy. So if you can't make this return then you will pay tax as if you did.

10 year government bonds are yielding 2.98% and 1 year savings rates are upto 4.2% so these savings would not be taxed any more than they are now.

What is Productive? It is entirely subjective.

- I would have thought for a young family, a house of their own is a very productive investment.

- A refinery investing in pipeline infrastructure is probably more productive than paying out dividends to shareholders.

- A winning lotto ticket is immensely productive for the winner.

- Buying a share (outside of an IPO) can not possibly be "productive" as no actual money goes to the company to invest.

- Personally I think the Phoenix are an unproductive investment, as are the Warriors, and the Blues.

Productive is determined by whether they make a return above the minimum risk-free return rate.

Exactly. It seems to mean a lot of different things to armchair economists.

"A winning lotto ticket is immensely productive for the winner."
Unless you are playing a very heavily snowballed lottery, it is never productive for the winner.

"Buying a share (outside of an IPO) can not possibly be "productive" as no actual money goes to the company to invest."
A share is productive if it is increasing in value, no matter if IPO or not.
The value of shares for public companies indicate the value of the company as a whole. As the value of the company increase, the ability for them to borrow increases. Thus, productive.

What's the difference between an armchair economist and a so called "expert" economist?

You're saying the ability to borrow more is productive. Ah, we have the solution to NZ's productivity issues. If we all increase our ability to borrow we will be productive. Um, isn't that what we've been doing for the last 20 years?

Of course borrowing can be productive if your interest costs are lower than your investment return.
Just think about it.

It's not the borrowing that is productive then is it, it's what the borrowing gets invested in. Can the investment return always be measured? "What can be measured doesn't always count and what counts can't always be measured"

Look at the investment in housing, especially owner occupied. How do you measure the safety, security ones own home provides? From a financial perspective most housing is unproductive unless you expect a massive capital gain and even then one may only break even or worse. How productive then is the massive level of debt that has gone into this "investment" class?

Can the investment return always be measured? Yes, it is a financial calculation.

Can the value to the payer be measured? That is the subjective part. Feel free to buy a overly expensive house and pay the tax if you think that has value to you. People already overspend on new cars despite the depreciation effectively being a tax on the capital invested.

Exactly my point. TOP is trying to relabel "Profitability" as "Productivity" the two can be completely unrelated.

This is where economic capitalism fails. Productivity is sacrificed for profit. We are seeing this play out in the news right now. RNZ would be deemed very "productive" by TOP. Yet one could easily argue they have been anything but.

"This is where economic capitalism fails. Productivity is sacrificed for profit."

Do you want to reread that statement?
Because it is completely wrong.

Unless of course you mean in the case of imperfect markets?

Can you show me a single perfect market?

The automobile industry is a good example of a market that doesn't sacrifice productivity for short term profit.
Electricity markets are another good example.

Your statement was that capitalism sacrifices productivity for profit though, which is fundamentally incorrect.

Neither are perfect markets, and both are terrible examples of profit/productivity.

Automotive - VW Emissions scandal ring any bells?
Electricity - You have got to be kidding me! I have worked in the industry. They are notorious for under investment in infrastructure, bare minimal maintenance, and lack of redundancy. Remember the brown outs in Auckland 20? years ago. Ever wondered what happens if the Cook strait cable has an issue? The sole reason they are going "renewable" is profit, as they have no input costs like Gas, Coal, nuclear.

True, they aren't perfect markets but they are pretty much the closest we have.

So, in your view, firms always value profit over productivity?
How then can they survive long term?
Think of it this way - is either factor exogenous? Or perhaps are they endogenous of one another?

Your perspective says that productivity is a result of profit, which cannot be the case.

"The sole reason they are going "renewable" is profit, as they have no input costs like Gas, Coal, nuclear."
That's surely productivity, right - less marginal input per unit of output.
Look at some of Wolak's papers on the energy industry.
In the case of the USA, NEM1 and NZ, he has consistently found that the pricing of generators is anchored to marginal costs of production. Sure, gaming exists to maximise short term profits, but that cannot and doesn't guarantee long term profits. Hence the only method to achieve that is increases in productivity - as per you transition comment, above.

You raise some valid questions.

Do firms always value profit over productivity?
The sole point of a business is to turn a profit. So yes, in my view that will always be the primary motivation. Productivity/efficiency issues only tend to be addressed when short term profit is negatively impacted.

How do they survive long term?
That is an interesting one.

I would pose a counter question - do they? Many, if not most start-ups don't survive more than about 3 years (can't quote this exactly, but I remember seeing something a while back about this)

So that leads into the question what constitutes long term? 5 years? 10 years? 20 years? 50? 100? 200?
Our stock market (in its various forms) is only 140? years old, are there any firms existing now, that were there at the start?

Finally how do you define "survival"?

Maybe the following tests?
1. If they shut up shop today could they pay all debts?
Apple? yeah probably. Anyone else? probably not.

a).Have they ever died, only to be revived via Government intervention/bale out?
BNZ and AMI are two big local ones that come to mind as failing this test.

b) Have they ever died, only to be revived via alternative means?
Dick Smith fails here.

3. Have they been merged/acquired by someone else? i.e. cease to exist independently?
Compaq acquired by HP.

4. Do they operate ethically and fairly? i.e. do they survive at the cost of the rest of humanity?
Child sweat shops - e.g. most clothing manufacturers.
Pay fair taxes - Apple.
Environmental destruction - BP?

"Sure, gaming exists to maximise short term profits, but that cannot and doesn't guarantee long term profits"

Both true and false. Shall we call it Schrodinger's profits?

Gaming (corruption/cheating/scamming/entirely illegal) behavior exists and continues to work as long as it is not stopped. When it is stopped, does the company survive?

Without inside information on all companies it is virtually impossible to identify this behavior let alone stop it.

In NZ a ComCom/SFO request is still reliant on the company self disclosing information. Lies can be told, truth can be hidden. Auditors can be led, distracted, and misled. Systems can be rigged, amended, and deleted. Accounts can be duplicated and hidden. Whole business decisions can be made without any trace of physical evidence.

All that and we haven't even got to the collusion and bribery of the independent bodies, or the complete inability to protect whistle-blowers and other good citizens reporting dodgy behaviour.

Even if identified. Meeting the burden of proof in court, required to stop/penalise the behaviour is an entirely new issue. To paraphrase "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a Giraffe"

Finally you have the enforcement....something we here in NZ are particularly poor at.

You could say I have an overly dim view of business. But that has not come from sitting on the sidelines.

"imperfect markets"
LOL - you mean imperfect economic theories

Still better than your 'Gailtheactuary', though.

So she is your yardstick now?
i spose thats progress

You'll believe anything.

The dotcom boom and bust is a great example of the lack of correlation between profitability and productivity. The TOP proposal would here encouraged investment in momo stocks as opposed to actual productive investment or prudent savings. Just because a stock price increases does not mean anything about the companies productivity. Sometimes there is a correlation but many times the market can be irrational. Sometimes, very irrational...

Most of the dotcom stocks had zero yield and relied on capital gains. So you would be paying increasing capital tax on them as they increase in price and receive no income form them. This is an incentive to sell rather than hold.

One could also use the same logic for investing in Auckland housing... we've seen how that has worked out!

Yes, this is the point TOP has been making

A capital tax forces you to decide if you want to make an unproductive investment. Nothing is stopping you throwing all your money into your McMansion or dotcom shares, you just have to pay for the privilege. It is your decision whether this has value to you.

Yes but the TOP logic is that it will make housing more affordable for the next generation.

Can someone please explain in economic terms, how a TAX decreases price?

In an increasing valuation market, it will have essentially zero effect as the paper gains will persuade the specuvestors to keep their properties so as to not miss out on the future gains. Once the market tops out, it will have the effect of amplifying the positive feedback (positive in this case resulting in a greater rate of change of prices to the negative) as these investors become incentivized to sell due to the taxation. In other words, the TOP capital tax will increase the instability when the bubble bursts.

"In other words, the TOP capital tax will increase the instability when the bubble bursts."

Just what I want in a Government.

Not if it slows/prevents the bubble in the first place. A tax like this will increase stability over time.

We are almost at peak inflation of the bubble. Deliberately creating instability at this point in time in lunacy.

Quite right .. additionally to that TOP tax being on house equity only ( net any mortgage ) will make leverage more attractive - further increasing potential instability,

It's a lot better than the current situation of no tax

Opinions evidently differ. Rewarding the use of leverage and discouraging savings are two large negatives in my mind. It is far better in my opinion to tax the capital gains, or of you have to tax the property, do a land tax on the full value rather than only the equity value. Both of these will reduce property speculation and increase price stability much better than the TOP concept.

This is how the tax would work. Assume minimum rate of return is 3% (a guess based on the comment above) and tax at 33% (although will reduce if capital tax introduced)
Yield - Tax Paid (as percentage of capital)
0% - 0.99%
1% - 0.99%
2% - 0.99%
3% - 0.99%
4% - 1.32%
5% - 1.65%
6% - 1.98% etc

In this scenario, you would be motivated to move any money earning less than net 3% yield to more productive investments. So rather than buying another investment property returning 1% after expenses, you might invest in a business that returns >3%. Conversely, all overpriced assets will fall in price until they return the minimum rate of return (3% in this example)

Partiality will make him a perfect fit for the Working Group then, which I suspect publishing this on the eve of the Election is designed to promote. He's aiming for a place on the table and you'd be naive to believe this forum isn't loaded with the types of people who'd recommend him i.e. Party activists. Smart move.

Why should the discourse be restricted to a capital gains tax?

I fail to see how this makes Baucher a "leftist".

I am still waiting for 1% of the effort and claptrap over changing/increasing/introducing new taxes being applied to reducing costs so taxes can be reduced as in my experience individual and business's spend their money far more effectively and productively than any Govt, Council or Bureaucracy.

2% Financial Transaction Tax. get rid of everything else.

This would need a lot more thought as there would be a lot of consequences. For example, any intermediary business is at a tax disadvantage (2+ payments) over someone paying the supplier directly (1 payment). For example, a renter would pay the landlord (taxed) who pays the bank (taxed) versus a homeowner who pays the bank directly. This automatically makes renting 2% more expensive. Or schemes will appear where the mortgage portion of the rent gets paid directly to the bank and the profit portion gets paid to the landlord.

2% is also far too high. To put money into a savings account and them withdraw it is a 4% round-trip. Why bother saving? Expect a cash and barter economy to expand massively.

Excellent suggestions Mr. Baucher. One thing I would add is that the tax working group should not consider rates or amount of revenue raised Perhaps if they come up with a good structure then everyone can agree then the differences of amount raised can be a separate discussion.

Betting tax working group will bring a lot of change, and do it very quickly. Capital tax is certainly the most difficult for parties to avoid, and requires the least amount of govt drones to operate (big positives in my book), but represents a monumental sea change and would see unproductive capital (leveraged specuvestors farming tax loss or nil return) significantly impacted. Could be the biggest economic change in NZs history. End of the day vote for your own self interest as that is in essence what democracy is.

Vote for continued speculator tax support and bank profits, or vote for the averageman tax payer right to his own his own shelter and access basic services including clean water.

“whether the tax system can be fairer in its role of redistributing income' is code for tax the crap out of everyone so we can buy whatever we want...

Are savings really over-taxed? It is only the interest income that is taxed. Maybe the question should be: are some forms of income over-taxed and others under-taxed? Ideally all forms of income need to be included in the tax net which includes income from capital.

Maybe the role of the tax system requires defining. The 2001 terms of reference to whether the tax system could be fairer in its role of redistributing income is a false expectation (IMO). The role/purpose of the tax system is to provide revenue to the government. Yes it has to be balanced and fair to all members of society. If the distribution of income is flawed then that is a failure of "the market" and probably needs to be regulated. That is the role of society/government, not the tax system. How do we encourage the fairer distribution of income without the government as the middleman/ticket clipper?

"Ideally all forms of income need to be included in the tax net which includes income from capital."

Exactly - tax corporates on revenue.

Revenue and income are not quite the same. This might help:

I know, I use the words in an approximate manner.

When looking at my "income", IRD do not count my $5 trade me sale, sale of shares, or sale of other property (not meeting CGT requirements). They only count my earnings from work - i.e. my "revenue"

Yet, as an employee. I cannot claim any deductions for my expenses of doing business - transport and parking to get to work, suit and tie to dress for work, meals while at work, mortgage, power, and other fixed costs that I can't benefit from because I am at work.

My point is there is an absolute advantage to a company over an individual. This is the real unfairness that all the parties seem to be missing.

Either tax me on profit, or tax companies on revenue.

Whilst the legal vehicle we call a company has some benefits over individuals it is the most successful way yet we have conceived to manage risk.

There are also reverse circumstances where being an individual employee is better than being a company or director.

"..that is a failure of "the market" and probably needs to be regulated."

All markets are a construction of regulation. To say it another way, there is no such thing in NZ as an unregulated market. All markets are already regulated.

It was David Chaston that made that comment on NZ Super. I apologize to Terry for saying it was his comment.

Good luck finding someone who does not have a vested interest in paying tax. We could get a group of foreigners (non-NZ tax payers) to design the taxes for you although I suspect a group of Kiwis from all walks of life would be better.

on his blog he complains about The Block contestants and then says there is no CGT in NZ, well there is CGT in NZ on property, you have to pay tax on properties if you are a trader or sell them before 2 years...what a cop...

Technically, that is income tax (as is the bright line test). A trader's capital gain is considered as income and taxed at income tax rates.

Andrea and Susan are great selections for the TWG. I'd also like to add Therese Turner for her work as co-author of Staples Tax Guide and her pragmatic approach to all things taxation.

If the capital tax on the home can be deferred (for a retired lifetime?) via an interest free mortgage to the IRD, won't this significantly reduce the tax take? As a result it will severely limit any possible reductions in income tax. How will the Govt make up the shortfall if retirees en mass decide to defer all their liabilities?

Gareth Morgan is an idealogue just like Roger Douglas. God save us from another economic experiment - especially one that attacks the (admittedly much battered) kiwi way of life which is so intricately linked to the family home. Why don't we just have the general international Capital Gains Tax: exempts personal possessions including family home, rate equal to top tax rate and has a couple of grand exemption.

Imputed rental value of owner occupied housing (net of mortgage interest and some expenses) should be taxed as income. This was the case in the UK until the 1960's/70's, and in various forms in many other countries. It's explained on the internet - just Google it. No great mystery. The NZ policy makers are undoubtedly quite aware of it but choose to overlook it because it is politically very contentious. Clearly, failure to tax it amounts to subsidy to owner occupiers effectively capitalised into higher house prices. It is inequitable that rent payers effectively do pay tax at income tax rates on the rental value of the property they occupy (they have to find a gross amount of income and pay tax on that before having a net amount of income with which to pay rent). Until the 1980's the scale of subsidies tended to be received by a significant proportion of rent payers (i.e. various kinds of government social transfer payments received by beneficiaries) tended to complicate the inequality equation. But those subsidies have since greatly reduced - thus greatly reducing that complication. Introduction would broaden the tax base, remove a subsidy capitalised into higher house prices and remove a gross inequity. Introduction could be "neutral" on total tax take - through reductions in direct taxes - e.g. in GST. Quite practical to introduce this without being part of general wealth tax.

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