TOP's Geoff Simmons: NZ's tax reform needs to be revenue neutral for the public to be convinced the Tax Working Group isn't a tax grab

Geoff Simmons

By Geoff Simmons*

The Tax Working Group (TWG) reported back last week, and the debate has already divided into two camps. Roughly half of New Zealanders, about the same number that vote National, will write this whole thing off as a tax grab. A typical left-wing exercise in the politics of envy, all part of their eternal plan to “eat the rich”.  The other half will support it for the opposite reason.

There is a way for Finance Minister Grant Robertson to ensure this work generates a useful debate, rather than fading away into the usual political slagging match.

Robertson should announce that all revenue generated – at least from any capital tax – will be used to reduce income taxes. In other words, it will be revenue neutral. This is the only way to ensure that both the left and the right engage in the debate in a thoughtful way.

For now, let’s not even talk about raising more revenue. Let’s talk about how we collect the tax money we need in the way that is best for our society, economy and environment. We can talk about whether our tax system is ready for the future changes that are to come (such as increased automation).

So far, Robertson has been quiet about this. The Tax Working Group did set out options for revenue neutral options that money raised could be spent on. However, they stopped short of saying this exercise should be revenue neutral overall. That vagueness is probably understandable, as such a stance would be political in nature.

Tax is too important to our country to be stuck in this left vs right game of political football. Everyone in the centre agrees we need to collect a certain amount of revenue for health, education and our burgeoning superannuation bill. Despite all the rhetoric, neither of the major parties is planning to take government spending far away from the roughly 30% of GDP it sits at currently.

So if we generally agree that the amount of tax collected is about right, we need to shift the debate to how we collect it, and who we collect it from. Currently the gap between rich and poor is growing, and the tax treatment of capital, especially housing and land, is at the centre of that. It is also a cause of our poor economic performance as all our investment money has funnelled to the lowest tax option: housing. And finally, the parlous state of our environment should be no surprise when we have some of the lowest levels of environmental taxation in the OECD.

How we collect tax can impact all of these issues. House prices, poverty, businesses, jobs, the state of our air and rivers.

If we narrow the conversation to these issues, it should be clear to all that our current system is failing, and needs an overhaul. Robertson can have the debate about higher taxes another time.


*Geoff Simmons is an economist and The Opportunities Party's Leader. This opinion piece is also published on The Opportunities Party's website.

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51 Comments

Jog on Geoff. Taxing people to live in their own houses, and on the imaginary income they are earning from their boat, is never going to fly even if it is "neutral". Wasted vote. The only thing TOP is good for is stealing votes from Labour and the Greens.

And even though Gazza isn't front and centre anymore, everyone knows he is still pulling the strings. He's not giving you all that money for nothing.

Capital gains tax doesn't tax people for living in their house. It merely taxes the profits if/when they sell. Also, land tax is taxing people for their exclusive occupation and monopolisation of the single most important natural resource.

Why should I be taxed for saving and investing for my retirement?

Why should earned income pay all the tax and unearned income get a free ride? Everyone's saving and investing for their retirement.

It's not unearned income. It's income earned, that I already paid a ridiculous tax on, and now I am investing.

And no, most people I know don't save or invest for their retirement.

Anyway, it's a ridiculous idea. All it's going to make me do is invest that money in countries with less punitive tax systems. Globalisation means us peasants can shop around as well.

Capital gains are one of the forms of unearned income. Not the initial wages you're referring to.

If you're suggesting capital gains tax will discourage monopolisation of land for capital gains...well, that's a good thing for many outcomes and for many Kiwis. It sounds like you'd be encouraged to invest in more productive enterprise.

Though I agree with you that a flat land value tax would be a better approach, alongside a decrease in corporate and personal income tax. Much harder to avoid / evade.

Capital Gains Tax is very unpopular, but TOP goes radically beyond this by proposing a "Wealth Tax". You get continuously taxed on the imaginary income that your house, boat etc are earning. And you don't just get taxed on your boat's imaginary income once - you get taxed year after year, until the total tax you've paid exceeds the value of the boat. And because the "income" from your boat is imaginary, there is a total disconnect between the tax you are required to pay and your ability to pay it. And even cash savings aren't safe from the "Wealth Tax" - great way to help young people save for their first house, or encourage people to save for retirement. The mental gymnastics required to justify this are quite a feat. Not to mention that enforcing such a tax is exceedingly difficult.

And despite Geoff's claims about not wanting tax changes to be a money grab, TOP has admitted that they will need to increase tax take (closing loopholes) to pay for Universal Basic Income.

Geoff, if you get less than 5% of the vote this time round, please take the hint and shut up shop.

Yeah, I've never really read into what TOP goes for. I'd think a balance of land tax and income / others would be better. Better certainly than foisting it all on the poor folk who work for a living while letting off altogether all unearned income from monopolising land.

It's an odd assumption we have that only folk who earn their income should pay tax on that, while folk making thousands of dollars per day from the betterment given them by the society around them should pay nothing on that unearned income.

They are a snake in the grass. They publicise their more tame/palatable policies like CGT and UBI, but their more radical policies are there in the background.

the original income was earned, the rest was not. Let’s say someone becomes a property investor at age 20 and becomes a billionaire on capital gains - the only income they earned and paid tax on was their original deposit. They may have only paid a few bucks of tax their whole life.
By your argument any pay rise I get is income I got by investing my time in upskilling myself. So my tax should be based on my very first income?

Income from investment to improve your income from labour is taxed, why not capital gains?. E.g. if you invest in your professional skill (e.g. get a MBA from Harvard by paying $200k of your saving from your income after tax) and therefore you earn more income from your labour, you will pay more tax. Now if you invest that money in a house and have a capital gain on sale, you wont pay any tax. Does not make much sense to me.
I do agree that saving is a behaviour that needs be encouraged. So at least in theory I support a lower rate of tax on capital gain. It will be great if the government can reward those types of capital saving that are more beneficial to NZ economy (e.g. capital invested into building new properties Vs buying existing ones, or lower capital tax for investments in listed NZ companies or start-ups with innovative ideas supported by the government etc.)

Because the idea that his housing bubble is caused by a lack of capital gains tax is ridiculous.

If you want to tax away the housing bubble, you tax land. Not capital gains - which affect things that aren't houses.

Also - we're already taxed to death (I'm not in favour of progressive income tax) - are they going to remove corporate or income tax after they introduce this one? No? Then excuse me for not wanting to be taxed on my income, then have that income taxes as I try and investment, then taxed again as I try and spend it in my old age.

I totally agree with you that mentioning CGT as an underlying cause of housing affordability is more political spinning (to make it sound they can do something about HA) and not a strong economic explanation.
Progressive taxation is a fundamental element of welfare states who rely on tax (i.e. dont have something like oil that reduces their dependency on tax income). The only way everyone can afford free health and education is progressive taxation. At the same time, taxing people more and more because they can pay will get really unfair at some stage. There should be a limit to how much net tax (e.g. relative to your total annual income from all sources) a citizen pays. But this is much easier to say than implement as a policy.

I view the welfare is a kind of necessary evil. And our pension system is not even remotely sustainable, it will bankrupt us if we let it.

I wonder if we could save money by having some kind of very limited UI. Let's say each individual has 2 years on the dole to spend over their whole life, no questions asked. After that, you need to go through the WINZ machinery. Those offices and huge numbers of MSD staff cannot be cheap. They should be re-orientated to dealing with the long term unemployed only - as it is they treat everyone the same.

Also, I'd make sterilisation pre-requisite of receiving state money to help with childcare. We are not helping things by literally subsidising poor unemployed people to have poor babies.That would cut down our tax burden by a lot.

@Ocelot, land tax is a punitive tax to force people to use their private property in a certain way. Giving up control of that is giving gov too much control. Remember you paid tax all the way in earning the money to purchase a property as well. To steal waymads Jefferson quote from this morning “A government big enough to give you everything you want is a government big enough to take away everything that you have.”

To roughly quote Milton Friedman, "All tax is bad but land tax is the least bad".

Touché Rick, I do like a bit of Milton Friedman from time to time but with this I will have to disagree. I’ll come back with a quote from William Wallace (or at least Mel Gibson) “freeeeeeeeeedoooooooooooom” ;)

"Freeeeeeeddooooommmmm*"

*not for wage slaves

Huh? I’m not saying I’m against cgt. The difference for me is if you have to pay tax, at least pay it when you earn money. To pay tax just for owning something is crazy, especially when you paid tax earning the money to purchase it in the first place.
Wage slaves wouldn’t be free with a land tax either, a gov would never give up income tax? I’m I missing something with your point here?

Was just being facetious re our situation today, where capital gains receive freedom while wages get punished heavily.

I see. I wouldn’t mind seeing a cgt added and a reduction in income tax so it’s revenue neutral, how about that? (I would prefer less tax in general but trying to be pragmatic)

If it is revenue neutral than the taxpayer will pay more to cover the costs (staff, offices, paper, ink, tea and bikkies) of two tax gathering schemes rather than one.

"....exclusive occupation and monopolisation of the single most important natural resource.." Unless you are homeless, every single person exclusively occupies and monopolises a piece of land, whether they own it or not. How would taxing it benefit anyone other than politicians?

CGT should be targeted at anyone who invests in an item, for the express purpose of making a gain on it's appreciation in value, and should only be levied when and if that gain is realised. The tricky bit is when the less scrupulous manipulates the investment (or numbers) to make a loss on paper to avoid tax, and making rules to avoid or prevent it.

You invest your cash in a home and the income return is your accommodation - otherwise rent and pay for this from tax paid income. Money in the bank and you get interest..that is taxed.

Fair enough if you don't like the idea, but to claim its unfair/different etc shows a lack of cognitive reasoning skills.

Living in my own home is “income”? Great, so I can use that income to pay the tax. Oh wait, I can’t, because it isn’t income and the “Wealth Tax” (not Capital Gains Tax) introduces a complete disconnect between the requirement to pay and one’s ability to pay.

Cash savings under my pillow would also subject to the wealth tax. Certainly can’t claim I’m receiving any “income” from that.

Assets like boats are also subject to TOP’s wealth tax. You pay the tax year after year until the tax paid exceeds the value of the asset being taxed.

What a joke.

And we await, not exactly with bated breath, for the usual outpouring of tribal positions in the comments thread below. Plus, and but of course, from Them as wot Always Know Best, if only we would let them be God for a day (or, possibly, a bit longer).

I'll bring a beach chair, aviator shades, and a glass of something frothy, tall and cool to the spectacle.

Let the Debate Begin!

Them as wot Always Know Best

Hey Pot, have you met Kettle?

Robertson said it will be revenue neutral already when the interim report was released.

Don't confuse revenue neutral with cost neutral.

Get rid of all the subsidies like the rent subsidies (aka landlord benefit tax) and WFF by paying decent wages, stop paying benefits to immigrants before they reach the 10 year Super entry in fact make that 25 years right away..
Then the tax system would be tax neutral but some on the other side of the collection system will still moan.

You compare benefits (paid by the government, or tax payer) with wages (paid by the employer). They are completely separate and one cannot directly offset the other.

I don't care where they come from. The facts are that rent subsidies in the end get paid out of tax and help to raise the property values, which is basically the land underneath the building. Either the Government builds more social housing or ends up paying the landlord. Nats have always neglected social responsibility of the state and Labour in recent times has been not much better. Was it Key who said WFF was "communism by stealth"? and then adopted it because he was scarred to make any changes that might lose votes.
Voters are greedy or fools or both if they think the present systems can go on.

Add to that the the FHB grant or whatever it is and the use of KiwiSaver to purchase a house. Both hugely distorting of the house market.

If you remove the ability to use kiwisaver (which is their own money) to buy a house, then all you will do is discourage people from participating in kiwisaver to start with. Why would they put money in Kiwisaver instead of saving for a deposit or funds to start a business. Kiwisaver has very little going for it as it is, with your money locked in till you are 65, and you can access in some cases a nearly identical return from a fund without the lock-in.

BB3, I get your point about benefits but in your anger you don't seem to understand that the government cannot replace benefits by paying "decent wages" as you claim in your original post, because the government doesn't pay wages to Joe Bloggs

I made the same point as G S on this site before. How different would the tax reform sound if it headlined
"looking at ways to reduce taxes in NZ"
It's marketing 101, if you want to sell something (the government wants to sell tax changes) tell people the benefits first, (it gets people's attention) then tell them later "and we will increase some other prices (taxes) to pay for the discounts.

They mentioned ditching the vehicle rego and all I've seen is lots of sheep wanting to keep it, go figure.

I seem to recall they mentioned ditching rego and adding more fuel tax to replace it. So there are always some that are going to not like the idea, they like being subsidised by the people that own multiple cars or don't drive much.

The first brief from COL to Cullen was dont hurt the Maoris. So NO Land Tax.

"Moari land" by the very nature of its title will have a lower value, so perhaps not.

So let me get this right .

My wife (of 30 years) and I have scrimped and saved and forgone other consumption for many years to build up a pool of capital assets .

My brother-in -law ( same age ) who has for most of his career earned more than us , has burnt through his money like a drunken sailor on shore leave , saved nothing , smoked until 2 years ago when his health became an issue, is up to his eyeballs in debt , been through three wives , cheated on his wives (and his taxes ) does not own a home, and was forced to sell his flash OTT Bays home during the GFC ..........blames John Key for his predicament

And now he votes Labour .

He is resentful of what we have and calls me " Scrooge"

Idiot.

I dont see why we should be taxed on Capital assets when we have done exactly what the NZ Government wanted us to do since WW2

Work hard , save , pay tax and try not to ever be a burden on the State

Perfectly put Boatman !

So your Mr and Mrs average then? That will mean no you won't be paying more tax you'll pay the same as its neutral. It'll just change from where you pay it and if you work harder your income tax will be proportionally lower.

NZ society since WW2 also provided:

1. Free education
2. Free / very cheap healthcare
3. Affordable housing through a number of efforts and measures
4. A pension regardless of need

Given society has provided significant wealth betterment by stopping those efforts to foster affordable housing, there's no reason why only those who work for a living should be taxed on that earned income, while that unearned income gained through the efforts of society around folk is let off completely. Why put all the burden on today's working folk, given all that help received from society?

In NZ, there's been no such thing as doing it all on one's own two feet without any help from society.

And as others have noted, the idea is to decrease earned income tax and increase it on unearned income, while remaining neutral overall.

I would vote for a 15% reduction to the top income tax rate and corporate tax rate.

If paired with a large enough capital gain or land value tax (on all property) to make it revenue neutral?

Bit ironic TOP talking about marketing when they have patently failed to market themselves. Or HAVE they marketed themselves well but very few are compelled?

Haha exactly my thoughts.
TOP giving out marketing advice - lipstick on a pig maybe?
But you're probably right, TOP are actually experts on everything, including marketing, but the stupid voters just don't get it.

The goal of "being revenue neutral" will be assisted if the tax working party supports my submission on optimising the system for measuring the cost of providing publicly funded healthcare to non-eligible overseas visitors. This cost cannot be calculated accurately currently and is estimated to have cost the NZ taxpayer 2.8 billion dollars over the last 20 years - 1.5% of Vote Health less recoveries made by public health providers. In the last financial year alone the amount is estimated to have been 180 million dollars. By matching overseas visitors medical insurance details with subsequent publicly funded healthcare this cost can be fully recovered. The insurance sector has received a significant subsidy over this time at the expense of the NZ taxpayer and public health providers

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it"
Upton Sinclair 1878 – 1968

If it is revenue neutral than the taxpayer will have to pay more to cover the quite significant extra costs (staff, offices, paper, ink, tea and bikkies) of two tax gathering schemes rather than one.