The Government has unveiled plans to require its tax officials to start formally reporting on how the tax system is performing in relation to a set of yet-to-be-determined principles.
Revenue Minister David Parker made the announcement on Tuesday, in a speech entitled, ‘Shining a light on unfairness in the tax system,’ presented at a forum hosted by the Child Poverty Action Group, Victoria University’s Institute for Governance and Policy Studies and Tax Justice Aotearoa.
He said he hoped to start public consultation mid-year on what the country’s tax principles should be, and how government officials should be made to report on how the tax system is operating in relation to these principles.
He suggested high-level principles be put in legislation, which would require tax officials to report information relevant to those principles, and the government to issue a “guiding statement setting out its view on the development of tax policy”.
Parker noted that if standards for the reporting of public finances, climate and child poverty are set in legislation, so too should standards for tax.
Furthermore, he said it is important for voters to be able to assess political parties’ tax policies against some key principles. He claimed tax debate in New Zealand is “easily side-tracked by opinion and conjecture”.
Parker hoped legislation could be passed before the end of the current parliamentary term.
He stressed the Government has “no secret plan" to introduce a capital gains tax, wealth tax, deemed income tax, or any other type of tax.
“Inland Revenue is not doing any work to even develop these or other options,” Parker said.
More data collection on GST and tax paid by the wealthy
Parker also provided an update on work underway by Inland Revenue to collect data on the amount of tax paid by the country’s wealthiest.
He noted the research is being done because the financial affairs of the wealthiest aren’t fully captured by Statistic New Zealand’s Household Economic Survey.
“We have virtually no idea what rate of tax is paid by the very wealthy,” Parker said.
He also said he has asked Inland Revenue to gather information on how much GST people in differing income and wealth groups are paying.
“I support our GST system, but it is regressive,” Parker said.
“While not all taxes need to be progressive, the system overall should be. We can’t properly assess our tax system without knowing what effective GST rates are for different cohorts in New Zealand.”
Again, Parker stressed the Government isn’t working on introducing new taxes.
“Rather, this research is about improving the evidence base about how the current tax system actually operates,” Parker said.
“The information will inform future tax policy advice and so it may feed into future tax policy development.”
71 Comments
Poor old renter. Can't afford a home so is taxed on the interest which is less then inflation.
As opposed to us homeowners - who invest for accommodation and pay no tax on the return.
And they well never address that unfairness - by taxing the return on the home or allowing renters a tax free return on equivalent savings.
Ah yes, the principal fairness of the tax system is that home owners don't have to rent their own homes from themselves. God help us all.
Renters also aren't on the hook for things like mortgage repayments, negative equity or repairs and maintenance to their houses either. Throw in rising interest costs for good measure. Still an exercise worth doing?
90% of rent problems aren't tax issues, they're landlord or supply problems. Improve both of those and renters have far far more power in the market, that forcing home owners to take a further cashflow hit will do literally nothing to address.
I understand the point you think you're making perfectly, it's just a crappy point.
If you want something tax-related to really affect the lives of renters, tax undeveloped land so we get a decent flood of supply onto the market. The answer is not treating people who live in their own home as if they are generating some sort of income that we need to tax just because you don't think they're incurring the same costs as renters.
The wealthy can afford tax consultants, to help with reduction of tax. On business, large multinational companies were reported to pay lower taxes.
"He suggested high-level principles be put in legislation, which would require tax officials to report...."
Not sure if tax officials ought to do this.
"He also said he has asked Inland Revenue to gather information on how much GST people in differing income and wealth groups are paying. "
Big spenders pay the most GST.
I watched this live, and it felt like the building blocks of a good election strategy.
Legislating the need for IRD to report on how progressive the tax system is when all is included (inc GST, Capital profits).
This will show the rich dont pay as much tax, so Labour must evolve their tax policy to favour the low/mid, and can contrast th is against Nationals tax cuts for the wealthy/property owners.
Good agenda setter.
To enable this exercise the IRD was given unheralded and extraordinary power of enquiry, draconian if not Orwellian, in principle. That is to demand disclosure of all assets held by any one individual. Is this ability & legislation now to be revoked? If not then the mechanisms for a future wealth tax has been pre-set and can be justified then as an existing law. Hopefully this government will be out of office and unplaced to implement it. Very deceitful, back door stuff in my opinion.
Neither deceitful nor back-door. It's all there for you to read. Inland Revenue needs to be able to uncover every last dollar you've hidden away, because every dollar of tax you don't pay is a dollar some other poor sucker must pay. Call it Orwellian and Draconian if that makes you feel better, but tax is the glue that sticks society together.
So at long last an explanation as to the policy to wilfully and vastly escalate the value of property. The Greens should now detail just how many more family homes will now be captured, that is now over the threshold for their wealth tax, than when it was announced in their manifesto? My estimate about a 33% increase in take.
And to do that they are going back to 1086 as precedent to create their own little Doomsday Book, a running ledger on New Zealand household & personal assets. Certainly a very large number of New Zealanders have seen their family home value increase immensely in the last two years, and that being entirely outside of their control. Stand by for that to be clawed back by way of tax, should a Labour Greens government emerge in 2023.
Surely the wealthy who have low incomes but “borrow” (from foreign trusts or companies) would pay GST at over 15% of income. Anyone who commissions a builder to build them a house would likely have about 100% of income paid in GST the year the house is build (much of it coming from the mortgage, with regular living expenses still attracting GST as well), will these 1 off spikes in GST be removed to make the effective GST rate paid look lower for people who spend on these things or will they average it out over a few years? Perhaps do a projection and average against some arbitrary term (assuming that those who commission house builds upgrade every 7 or so years and as such pay a new lot of super high GST then) ?
It seems almost extremely politically driven with target objectives already defined, most of the work being how we achieve the figures we want to see. It brings to mind the tax working group that was made to use gross tax paid figures when the government was looking to change net tax rates. Ignoring that gross and NET tax can change without impacting the other (for example tax all income over $100k at 100% but then rebate 80% and you will get a beautiful gross tax whilst reducing NET tax). Likely the standards will be discarded as being meaningless as soon as a different government gets into power and the new government would be able to put the money saved to better use.
The CGT proposed was unmitigated garbage. In killing it they did the world a favour. But by ruling it out they ruined any chance of tax reform for the coming decades.
Here's some simple tax proposals:
1) Kiwisaver taxed on withdrawal
2) Govt required to index brackets with inflation OR RBNZ PTA target number e.g. 2%, whichever is higher
3) RWT-free interest threshold to promote savings in a low-rate environment.
Those three things require no explosive political debate and are such basic slam dunks that competent tax administrators would have tacked them onto a Remedial Matters bill years ago. But instead our tax system is geared towards extracting as much cash from middle class salary earners as possible so they don't care.
Agree with this and the parent comment,
but I want to put it out there and be "that guy" - enough votes for TOP to get them one tiny voice in a coalition would be an excellent step towards a tax free first 20K of income and some actual related ethical tax approaches. (Whereas I assume that the UBI from TOP would take a lot more than one or two MPs to bring to reality)
....and there it is- National has just won the 2023 election.
There are 2 areas you dont touch in NZ if you want to be in Government
1. Taxation
2. Housing
Kiwis rich and poor are aspirational - those not affected by the changes ie the middle class will still vote against them because they hope one day to be wealthy, or own an investment property etc. The middle class decides elections not the wealthy or the poor.
Quite the opposite of throwing the election away, I think this is the first decent punch they've readied in a while.
First they shoe that those on $60k-$100k have a marginal tax rate probably double or more of what the wealthy pay, and campaign on cuts for low amd middle earners, paid for by the rich, I think it will fly, especially against the nats regressive tax cuts.
Yes I do wonder if labour are being smart here. National are playing their tax cards early, labour haven’t really called them on it yet, but at the next election National will be giving big tax cuts to property investors and the rich, it’s hard to see how that will be that popular compared to a policy that helps the middle. I feel this is the setup: a working group that recommends big cuts to PAYE for the middle paid for by the people who employ accountants.
The problem there is, the poor are easily bribed wiht a nice looking increase in the benefit payment for example.
And then the election is won by who ever has the more short term policies of giving away more money.
Once a UBI comes in this problem will become even more prevelent.
Poeple dont want to make hard decisions that requires sacrafice or reduciton in their lifestyle today to have a better tomorrow. Thats is why elections are nothing more than a popularity contest. Just the same as a council election for example. WHoi would win:
Im going to cut spending on our gardens and tourism infrastructure to future proof our water supply and fix our sewage system OR Ill build a new sports stadium and make the town look good <3
This lot of idiots have their hands deep into everyone's wallets - and any future pay rises they might get due to inflation - but the stuff we don't get for what we pay is insane.
I'm pretty sure I could win an election by promising to triple funding for knee replacements, hip replacements, colon cancer screening and free dental, and having literally no other policies bar those.
We don't get that stuff because working folk in NZ are paying most of the taxes while most of the wealth gains are not made through work and are not taxed.
We have too many wealthy freeloaders and too little tax where the money's actually made for us to have those better services.
The problem becomes those people who are actually paying the tax which should be enough from them to fund them will simply end up paying more and more.
Arguably I am already paying enough to access that level of service and the government's inability to administer or update the tax system more than once every few decades lest it piss off a bunch of well-heeled pensioners should not be my problem. However, if I contract an otherwise curable disease or require a cancer treatment NZ does not offer, it becomes my problem regardless.
Taxation and the concept of social contract is linked, and there is an obligation on the part of the Revenue Collectors to ensure the tax system is fit for purpose. It is not, and that has become secondary to political concerns. This is not acceptable to me.
Very well put.
And now we hear bleating from the aged care / retirement resort sector because people aren't willing to work there looking after the aged for sufficiently low wages as the sector would like. Thus, why can't the taxpayer step in to help?
What is wrong with them paying the young more instead?
Labour are taxing landlords on revenue not profit. That's crazy and out of step with the rest of the worlds taxation policy. Labour are driving the poor into abject poverty with extremely high tobacco taxes and they're scratching their heads wondering why we have crippling poverty in NZ. Do you see the pattern. A raft of poorly thought-out policies leads to negative outcomes. Then denial of causality leads to doubling down on said policy. The end game might be blaming the rich, but that will likewise have unintended consequences.
"That's crazy and out of step with the rest of the worlds taxation policy"
We have plenty of instances in NZ tax law where deductions are limited or just flat-out not allowed, and we have an entire investment regime that taxes as if you're generating a 5% return each and every year. It's not even out of step with our own tax policy.
Like there's load of arguments against it but let's have some proper ones.
I've got a short cut for you Parkey my old mate... The purpose of taxes is to:
- Create unemployment and force people into the workforce
But, then any student of NZ history and politics will remember the dog tax - perfect example of a coercive tax regime (like the hut tax in other colonies). The dog tax soon put a stop to people living off the land instead of getting their hands dirty building railways didn't it?
- Stabilise the purchasing power of the dollar
Taxes are part of how the state sets the value of the dollar - alongside other measures like minimum wage levels, the salaries of public servants, fines and charges, and the amount paid on Govt contracts
- To express public policy in the distribution of wealth and of income
This is the biggie Davey mate. Our capitalist system channels money quickly and efficiently to the rich who then bloody save it or spend it on imported yachts and champers. Taxes are how we stop this getting ridiculous. Oh, it has got ridiculous! Quick - do something!
- In subsidising or in penalising various industries and economic groups
Taxes can dissuade and persaude David- you can use them to change stuff. Go for a carbon tax, land hoarding tax, share buy back tax - whatever you fancy. It's OK - it is what they are for.
- To isolate and assess directly the costs of certain national benefits (e.g. highways)
Some public services are only used by some people - roads for example. Taxes can be used to make sure the people who benefit pay. These taxes can get a bit complicated David - best avoided, unless you want to employ more people in IRD to work shit out.
Happy to help.
PS - these purpose statements are sadly not my own, they are based on some put together by the fabulously named Beardsley Ruml, who any decent economic historian will recognise as the Director of the New York Fed in the 1940s. Beardsley watched the US finance the war without blinking an eye or begging the finance sector for money. He declared that the era of 'taxes for revenue' were 'obsolete'. He recognised that taxes did not exist to raise revenue - given that they simply destroyed money already spent by Government (to stop it accumulating in the wrong places or bidding up the price of things).
One has to consider the origin and purpose of tax, who originally wrote the rules and for whose benefit.
I'd suggest much has been lost in translation over generations.
What is the purpose of tax? Should it be used to manipulate people's behaviour or should that be done via education, regulation and programmes that support empowerment of the individual?
Income tax. Remove the distinction between revenue and capital income. It may have had its benefits in the past, but I suggest we now accept that income is income no matter the source.
If we're really concerned about the issues we face today and in the future, much has to be rethought around social conditioning and beliefs. Society can no longer afford the accumulating wealth narrative. The discussion around maximum wealth will have to be had sooner or later.
About time we redefine the purpose and role of government because that definitely seems to have been lost. It's major time to start thinking about the self serving nature of many institutions.
Tinkering around the edges is not working.
Complete grandstanding waste of time.
As minister, he can simply ask for that information from Treasury anytime he likes. No legislation required.
Also, no Act of Parliament can bind a future government in terms of ideology and the "principles" it's forced to accept.
Interesting move from Parker/Labour. Without doubt he is motivated by politics with next years election looming.
Interesting to note that we have had record high tax takes since Labour came into power, record government spending and worsening inequality.
This is clearly a smokescreen to blame the wealthy and by default National.
How many millions did we pay on the tax working group around 5 years ago when this government commissioned it. Then what did the government implement from those recommendations in order to make it a fairer tax system? Crazy that we don't have CGT or land taxes like other countries. Instead we are looking at socialist envy taxes.
Want more rental properties? - make it more profitable for landlords.
Or, want less rental properties? - make it less profitable for landlords.
and we wonder why rental prices have risen......
Want more billionaires to come and spend their money here......... Have a low tax rate.
However, international companies should pay the normal tax. But then having paid that tax, it should not be charged again in their tax domicile.
And make sure Ruapehu pays it's carbon TAX. 3000 tons in one day last week.($225,000 - for one day). Anyone know who has ownership of the mountain? I think they're about to be bust if the taxation is fair.
Fifty years ago, Peter Diamond and Sir James Mirrlees, both Nobel prize winners, developed the "optimal tax" literature. They pointed out that an optimal tax system reflects a tradeoff between efficiency, equity, and simplicity objectives. In the subsequent half century, their work has provided the organising framework for most economists thinking on tax. Two major principles have flowed from this work
(1) You cannot understand the welfare consequences of taxes without calculating the incidence of the tax - who ultimately is affected by the tax, not who sends the money to the government. You have to take into account all the ripple effects on prices and economic activity as people adjust what they do in response to the tax.
(2) There is no objectively best tax system as it reflects a trade-off over different objectives, and there is no reason to expect people to agree upon what they mean by "equity" or fairness.
This first of these principles will make David Parker's task difficult, because neither the Treasury nor the IRD have methods to properly understand the incidence of tax - they have never invested in the type of models that are used to calculate tax incidence that incorporate the way that taxes alter property prices and change the incidence of tax. The failure of either the Treasury or the IRD to do this work is quite extraordinary, because the economic reforms of the the 1970s and 1980s mean that New Zealand has had the most unusual tax system in the OECD since 1990 . Tax officials simply have no systematic way to properly estimate how our tax system affects different cohorts, and they cannot use overseas models as a guide because our tax system is so different to overseas models.
It would be nice to think that the Treasury or the IRD could rely on previous work to help the Minister in his objectives. But it is not clear that they can. For example, the Tax Working Group spent only 1 page (out of 300 or so pages) discussing the single biggest difference between NZ's tax system and the tax system used in almost all other countries - our rejection of social security taxes (or mandatory savings schemes) to fund retirement income schemes. This is one of the reasons why NZ has consistently been recorded as having some of the lowest taxes on labour incomes and the highest taxes on capital incomes in the OECD (except, of course, capital income earned from owner occupied housing or capital gains). The failure to properly discuss social security taxes in the Tax Working Group documents is extraordinary in its own way, since it is such an unusual feature of our tax system and in most other countries it is used to raise a quarter to a third of revenue. A close reading of the reports suggests that it stems from an extremely unusual interpretation of the idea of horizontal equity. In New Zealand many analysts (including, it seems all of those in the Tax Working Group) interpret this idea to mean that people earning the same income should pay the same tax, at least if they live in similarly sized households. This interpretation has no basis in theory, and is consciously rejected as a goal in all other OECD countries.
It is perhaps a pity that Mr Parker didn't ask for a top-to-bottom review of the differences between New Zealand's tax system and the tax systems of other OECD countries, to see whether ours is still fit for purpose given how different it is to those in other countries. Or simply ask the Treasury and IRD to invest in models of the tax system that make some attempt to calculate the incidence of the tax, given the importance of land in the New Zealand economy. Then we could expect some progress. But since the minister has training in law rather than economics, it is perhaps not surprising that he likes to think in terms of legislative "action" rather than economic analysis as the best way to performs his duties.
Andrew Coleman
after lead
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