The Grimes proposals
Arthur Grimes has made some interesting proposals on tax. Grimes is the Chair of the Reserve Bank Board, but these are his personal proposals. He advocates:
- A 1% land tax
- Increase GST to 15%
- 0% income tax on the first $9,500 of income
- 10% income tax from $9,500 to $38,000
- 20% income tax on income over $38,000
Now what is the revenue affect on each proposal?
- New Land Tax – $12 billion more (costed by Grimes)
- Increase GST – $1.7 billion more
- Decrease Bottom Rate – $3.3 billion less
- Decrease Lower Middle Rate – $4.3 billion less
- Decrease Upper Middle Rate – $1.7 billion less
- Decrease Upper Rate – $2.9 billion less
The approximate loss of tax revenue is $12.1 billion against $13.7 billion in more tax, so it is definitely fiscally affordable. I’ve used the Treasury tax calculator but one should only use that for minor changes of 2% or 3% as it ignores some macro-economic factors. I suspect Dr Grimes has done more precise calculations. I suspect the loss on revenue won’t be as great as $12.1 billion because the desire to avoid the higher tax rates would diminish, and more income would be declared as taxable.
On the tax reduction side, I love the idea of a 0%, 10% and 20% structure. I like the fact that most of the money will go on reducing the lower and the lower middle rates. Imagine earning $35,000 and paying only $2,550 in tax or an average 7.3%.
The biggie of course is the land tax. I do share some of Dr Cullen’s concerns:
Finance Minister Michael Cullen, also at the meeting, questioned how people would pay the land tax if they owned property that was not earning an income, but he would not comment further.
A 1% land tax is pretty high. On an average urban property it would be several thousand a year. Of course almost all land owners would probably get more back from the tax cuts.
On the other hand, land tends to appreciate faster than 1% per year, so land would still be a good investment, just less so. The cashflow issue is more the problem. I’m not sure taxing ownership rather than activity is a desirable thing. Might start off on land but give the Greens a chance and you’ll be taxed for owning large easter eggs and non approved cars.
What I’d love to see happen, is for the Government to seriously investigate the proposal. Do a proper costing of the numbers. Produce scenarios on how it would affect people at various income levels and different levels of land ownership. See if there is a way to make such a package work as a win-win. Also most importantly see what effect it would have on increasing our economic growth and our national standard of living. It’s not just about how to divide the pie up, it’s about trying to grow the pie faster so we can keep up with Australia.
November 2nd, 2007 at 9:35 am
I like this idea. When will National be revealing their proposed plans?
I’m guessing it’s closer to the election so that they don’t get copied.
November 2nd, 2007 at 9:36 am
Hey, they’re catching up!
http://www.kiwiblog.co.nz/2007/03/capital_gains_tax.html#comment-290974
November 2nd, 2007 at 9:37 am
You can never release a final tax policy until after the election year budget, as that will give you the information you need to verify it is doable.
November 2nd, 2007 at 9:38 am
Tax? Yawn. How about that piece about unemployment you promised David?
November 2nd, 2007 at 9:44 am
You can never release a final tax policy until after the election year budget, and after Key and English have stopped fighting and agreed the aforementioned policy
November 2nd, 2007 at 9:49 am
i like it.
but i do not like the land tax because of the cashflow problem. expecting people to borrow or sell as suggested by Brash (in this morning’s Press) is grossly unfair and unrealistic (no wonder he got turfed out). amend this part of it and we may start to get somewhere. hurrah.
November 2nd, 2007 at 9:51 am
Whilst I like the idea of paying less income tax, where does this leave people such as the elderly who are on fixedon fixed incomes who may be living in areas which are increasing in or have increaded in value to such an extent that such a land tax is unaffordable?
November 2nd, 2007 at 9:51 am
I agree with Robinsod. No-one wants to talk about tax. There was barely a comment on yesterday’s thread about Jordan’s tax proposal. I predict no-one will bother to comment here. In that regard it will be much like Kiwiblogblog.
November 2nd, 2007 at 10:21 am
Local authority rates are a land tax which regularly causes problems because the value of the land is not necessarily a reflection on income. Few if any sheep farmers will have even broken even in the past financial year but the value of their land will have increased because of the impact of dairy conversions. The Government’s insistence that the value of LEI (land exclusive of improvements) now includes views has led to huge increase in rents for high country lessees although sheep don’t produce more wool because the scenery is attractive. For an urban example look at the elderly people living in very modest homes in newly desirable areas.
No tax for the first bracket and low tax for the second are worth looking at, although it would be interesting to know if the gains from this for low income people would be cancelled out by increasing GST to 15%.
November 2nd, 2007 at 10:27 am
“Might start off on land but give the Greens a chance and you’ll be taxed for owning large easter eggs and non approved cars.”
jeez – where did that one come from DPF? You just come off sounding bitter when you make such random and nasty swipes.
Apart from that it was a reasonable and interesting post though. The only real issue I have is with the inflationary impact of such a tax structure – though this would be less of a problem now that kiwisaver is up and running.
The land tax wouldn’t be such a big deal for low to lower-middle income earners (remember 40% of our working age population don’t own or co-own a house), so it would mainly hit average to upper-income earners – and like you say, this would be largely offset by the decrease in income tax. Another benefit this might have is that it would make investment in productive sectors of the economy more attractive relative to property, meaning that we would start to see capital intensiveness and productivity increase, and the housing bubble decrease. This has to be a good thing.
November 2nd, 2007 at 10:32 am
For land tax, you could go with how they work in California (or at least around San Francisco), where the land tax is calculated against what you purchased the land for. This means that people are unaffected by current market valuation. Of course the approach has its own distortions, but is an alternative to consider.
November 2nd, 2007 at 10:34 am
WRT Roger’s comment about low-middle earners not being affected – I would expect rents to increase to cover the additional costs. So it would be fairer to say that they are not directly affected. The additional costs may take a little while to percolate through, but landlords are not in the business of providing charity (even if many of them end up in this situation).
November 2nd, 2007 at 10:42 am
This is a real eye-opener. The land tax component would need more analysis but it is a solid alternative as a package.
November 2nd, 2007 at 10:43 am
Fair point MarkS – though I suspect that the negative impact such a tax would have on property values (other investments start to look more attractive) would offset much of that pass-on.
November 2nd, 2007 at 10:45 am
One assumes Mr. Grimes can read the Guardian, since I’ve had this interesting idea bookmarked for almost a year now. It has a lot of merit, but one would have to guard against pricing those on fixed incomes out of the family home.
http://www.guardian.co.uk/money/2007/jan/08/tax.business
November 2nd, 2007 at 10:45 am
asset rich, cash poor types (generally older) should not be forced to pay cash to the state when they don’t have the cash. It is grossly unfair. And politically it will not run. Sheesh its hard enough for them now with rates!
November 2nd, 2007 at 11:05 am
vto Says:
“asset rich, cash poor types (generally older) should not be forced to pay cash to the state when they don’t have the cash. It is grossly unfair. And politically it will not run. Sheesh its hard enough for them now with rates!”
So, these (generally older) types have some god-given right to continue to avail themselves of NZ’s extremely expensive Welfare and Health and Law&Order amenities and persist in using ‘poverty’ to justify paying almost no tax, while sitting pretty in their multi-million dollar Takapuna beachfront 20′s villas???
I bet, on the inside, they’re laughing at the young, single workers in this country who are giving up almost half of their income while struggling to accumulate enough money to purchase even a ‘shack’ in Auckland’s least desirable areas…
November 2nd, 2007 at 11:13 am
The extra revenue from raising GST doesnt seem right $1.7 Billion ??
That seems to suggest that the current 12.5% only raises $8.5 billion
November 2nd, 2007 at 11:19 am
The Greens support wealth taxes (which a land tax is) too – I think the income problem is a major barrier.
And of course the biggest beneficaires of these changes would be the wealthy. surprise surprise.
Low income people get a small tax cut – if they’re on $9500 its $1500 but when you take into account working for famileis its liekly to be less (many working families already pay little income tax thanks to Working for Families) and get hit with higher GST – which is a regressive tax. They have to pay the land tax too, even if they are renting it will be passe don in higher rents.
The real winner is the joker on $100,000 (about 2% of the population) he tax gets $10000 a year in tax cuts.
November 2nd, 2007 at 11:20 am
I think increasing GST could be a bit of a disaster — the cost of fixing everyone’s accounting software could be pretty high. And 12.5% is 1/8, which makes it a lot easier to calculate with than 15%.
November 2nd, 2007 at 11:21 am
vto – spot on
Doc – most elderly new zealanders do not have multi-million dollar takapuna homes, get real.
November 2nd, 2007 at 11:22 am
Doc -
I appreciate your point and it makes some sense (but not much, just sounds envious). But just because the rest of the world has suddenly decided it would be quite nice to live at takapuna beach doesnt mean that the ‘older type’ who has been there all their life should have to adjust their lifestyle and sell up and move just to apy some cash to the state.
That is what you are suggesting – that they should sell their home to pay tax. Get off the grass.
Actually, perhaps thats the solution to the land tax part of these proposals. The land tax should not apply to people’s primary home.
ta daa, bwilliant!
November 2nd, 2007 at 11:31 am
And 12.5% is 1/8, which makes it a lot easier to calculate with than 15%.
Believe me when I say this: A computer can calculate 15% in roughly the same time it takes to calculate 15%.
You wont be waiting any longer at the checkout.
November 2nd, 2007 at 11:33 am
“Believe me when I say this: A computer can calculate 15% in roughly the same time it takes to calculate 15%.”
OMG I need coffee!!!!!!!
Its meant to be Believe me when I say this: A computer can calculate 15% in roughly the same time it takes to calculate 1/8.
November 2nd, 2007 at 11:36 am
sam dixon – seems sometimes we agree but often not. Of course thw wealthy will be the biggest beneficiary – that is inescapable when they are currently the biggest sufferers. and of course the lower income get a smaller sum back because they currently pay a smaller sum. This often repeated argument of yours is completely disengenuous. but politically it sounds good to left type voters. It is completely and utterly false.
some reality is needed with tax. This proposal I think starts getting all the incentives lined up correctly and proiblems with the current system broken down.
Encourage people to earn more I say.
In fact, to take it another step – I have suggested in the past that tax rates should actually reduce as you earn more. The ultimate incentive. What’s your instant reaction to something like that?
November 2nd, 2007 at 11:39 am
Sam – I agree that it isn’t an ideal proposal. Actually I think it would be better to adopt the 0% tax up to 9,500. That way wealth inequality wouldn’t be made even worse than it already is (we have amongst the highest level of income inequality in the OECD). The lost revenue could possibly be made up for through introducing a capital gains tax on investment properties.
November 2nd, 2007 at 11:42 am
…. or Doc’s idea, that “the land tax should not apply to people’s primary home” could be used instead.
November 2nd, 2007 at 11:47 am
I think this is a good idea except that I am not in favour of taxation of unrealised capital gains on land – is that what is actually proposed?
November 2nd, 2007 at 11:47 am
I don’t like this proposal – GST should be decreasing rather than increasing. Apply the reduction in the reverse (12.5 to 10%) and use that to reduce the surplus slightly.
November 2nd, 2007 at 11:48 am
that was my idea mr nome not doc’s!
November 2nd, 2007 at 11:50 am
vto – ‘encouraging people to earn more’
- a) people are encouraged to earn more at any income level – an earner holds on to 80.5% of every extra dollar earned up to $38000 and 61% from $60,000 onwards – changing that amount marginally is not going to have a major impact on whehter or not people choose to work more…
,,, for most people, the amount they work and the amount they get paid isn’t a choice they can have marginal impact on – they get a salary so working more doens’t change their income – and they are paid what the boss will offer -which is dtermined by supply and demand, not productivity….
most people earn less than $26,000 a year – lowering the rate in the top tax bracket isn’t going to magically turn these people into $50K earners – they already would be doing jobs paying that much if they could.
As for lowering the tax brackets as income rises (this isn’t my instant reaction, I thought of and dismissed that as an argument when I was 16) – if you’re going to maintain the same level of revenue (and lets adhere to ceterus paribus for now) – you’re going to have to increase taxation on the porest members of our society enourmously – revenue is $8000 a person, the median income is 26000 – you’re going to make those who have the least give the most and those who have plenty contribute very little. Do you think the taxi drivers and contrsution workers will all beocme merchant bankers then? No of course not, most people will continue to earn low wages and a few at the top will live in splendour on their backs.
November 2nd, 2007 at 11:51 am
“In fact, to take it another step – I have suggested in the past that tax rates should actually reduce as you earn more. The ultimate incentive.”
The reality is that in a free market economy like NZ 65-70% of the population will be on an income that’s below the average. It’s simply the way the economy is structured – adding incentives to become rich isn’t going to change this.
November 2nd, 2007 at 11:51 am
Sam Dixon: And of course the biggest beneficaires of these changes would be the wealthy. surprise surprise
If only we can figure out a way to give a tax to people who pay no tax.
November 2nd, 2007 at 11:51 am
oops – my apologies vto.
November 2nd, 2007 at 11:56 am
Sam dixon – I think we sailed past each other.
In my experience tax rates do have an impact on the amount of business and work someone is willing to extend themselves for.
decreasing tax rates for higher incomes – its a piece of silly pie in the sky I know.
November 2nd, 2007 at 11:57 am
no Billy, the best thing is to ensure that people have good work, good wages, good public services (leaving more disposable income), and good educaiton and healthcare for their kids. – that’s the route to growing wealth, not one-off tax cuts.
November 2nd, 2007 at 12:00 pm
rossk – yes that is what was suggested. its one glaringly terrible part of what are generally sound ideas.
November 2nd, 2007 at 12:00 pm
vto – at the top ends of income that may well be true but something as broad as tax policy has to be designed with its imapct on most people in mind.. and most people work when they can for the pay they can get, they already are incentivised to earn as much as they can.
November 2nd, 2007 at 12:01 pm
Not what I asked, Sam.
November 2nd, 2007 at 12:01 pm
vto:
“In my experience tax rates do have an impact on the amount of business and work someone is willing to extend themselves for.”
The sill thing about that is that New Zealanders already work the longest hours in the OECD (bar Korea and Japan) – so where does it end? Why is working longer hours automatically a good thing. Surely there is a point where it has a net, negative impact on individuals and society (poor health, poor productivity, no time for community activities = increased atomisation, no time for the family = increased delinquency etc …. .
November 2nd, 2007 at 12:03 pm
agreed on that point sam, to some extent – see we do agree sometimes. but that is a small part of the overall picture.
gotta go
November 2nd, 2007 at 12:05 pm
yes mr nome you have a very good point there too. and i love to not work myself. but the discussion is, it seems, about tax and wealth creation which involves work. the whole work/lifestyle issue is only indirectly related and not so relevant.
November 2nd, 2007 at 12:10 pm
Great concept & would have the added side benefit of taking some heat out of the property market, as in effect the property value is dropped by the cost of tax. A 50% cut in tax bill would go down well to
.
November 2nd, 2007 at 12:13 pm
no Billy, the best thing is to ensure that people have good work, good wages, good public services (leaving more disposable income), and good educaiton and healthcare for their kids.
So I take it you wont be voting for Labour in the next election then?
November 2nd, 2007 at 12:20 pm
I work for myself and it is very difficult. However, it is stimulating and has helped me to grow as an individual. I also can call the shots to some extent when I want to spend time with my family, though I get no paid sick leave or holidays and can’t charge a 15% surcharge on holidays. But still te good outweighs the bad. However I do work long hours and that will not directly translate into cash in the short term. It will however, if I am successful, but then – her’s the rub – if I am successful, the tax system will lie in wait to penalise all my hard work. Therefore it pays me better top stay ‘under the radar’ and ‘underachieve’ if I want balance. Or ‘creatively account’ my earnings.
I also thought about what I discussed with gnome last week and did some research and gnome you were quite correct about the employment and unemployment rates of Labour/National and the ‘tight labour market’ (but I think that phrase is used to justify doing too little to ameliorate it).
I also found some alarming stuff about the rise of welfare dependency and the rise of uptake for sickness at the same time. but I digress. I used to work for WINZ so it was all too much for me.
So it’s all good.
Ps. gnome –
Here is a link I thought you might find useful in your own research:
http://www.workandincome.govt.nz/get-assistance/main-benefit/
November 2nd, 2007 at 12:33 pm
Lee C – I tried to get Dodger into some work a wee while ago. He didn’t seem keen. I love to see our taxes at work, don’t you?
Anyway, I thought this href=”http://www.objectiveministries.org/creation/projectpterosaur.html” project would be perfect for Dodger – the Guides job in particular.
Seemed right up his alley, so to speak.
November 2nd, 2007 at 12:35 pm
Try again
Lee C – I tried to get Dodger into some work a wee while ago. He didn’t seem keen. I love to see our taxes at work, don’t you?
Anyway, I thought this href=”http://www.objectiveministries.org/creation/projectpterosaur.html” project would be perfect for Dodger – the Guides job in particular.
Seemed right up his alley, so to speak.
November 2nd, 2007 at 12:37 pm
hmmmmm
this
need food.
November 2nd, 2007 at 12:43 pm
Thank you Chicken,
But gnome appears to be living proof taht you can’t second-guess natural selction.
November 2nd, 2007 at 12:57 pm
It’s OK, Dr. Ideology has changed his tune and will be introducing tax cuts for budget 2008. Just watch the same sad twits who slag of National for talking about tax cuts change their tune and support Dr. Ideology and sing the praises of tax cuts.
If only the myopic Labour apologists stopped the “Labour Good – National Bad” line just long enough to realise that they don’t actually support any position – rather they just support labour irrespective of what the policy is.
As for these tax cuts – a bit complicated. What is wrong with a tax free threshold (perhaps $10K) and flatter tax rates ?
November 2nd, 2007 at 1:07 pm
Nome drools- “The reality is that in a free market economy like NZ 65-70% of the population will be on an income that’s below the average. It’s simply the way the economy is structured – adding incentives to become rich isn’t going to change this.”
Do you even think about this garbage before you post it?
Full points for the stupidest tautology ever posted on kiwiblog (so far).
November 2nd, 2007 at 1:18 pm
I still like the idea of no income tax – but increased GST and adding a turnover tax to businesses – to be paid along with the gst return.
Adding a property tax will further complicate the tax system.
Having GST and no income tax means no FBT, and the tax system would simple enough for 90% of business owners to do their own books without an accountant. Compliance costs would be very low.
Also property would become more equal with other investment options because there would be no tax incentive to run a rental at a loss.
November 2nd, 2007 at 1:32 pm
No thanks Just worked out I would have to pay more than now. Still with a bit of thought theres got to be a way around the land tax
November 2nd, 2007 at 2:03 pm
“Nome drools- “The reality is that in a free market economy like NZ 65-70% of the population will be on an income that’s below the average. It’s simply the way the economy is structured – adding incentives to become rich isn’t going to change this.”
Do you even think about this garbage before you post it?
Full points for the stupidest tautology ever posted on kiwiblog”
I thought readers here would be able to join the dots. That said, I’m not surprised you’re stupid enough to have missed the point helmet. The point is that having a more regressive tax system won’t result in a higher proportion of wealthy people as the income distribution will be just as, if not more inequitable. And there’s no proof that it would incentivise “wealth creation” as the incentives are already there – i.e. NZ is already one of the most inequitable societies in the OECD (proving that the financial incentives to get rich are already there) and according to the world bank NZ is already the second easiest country to do business in. So it would achieve nothing.
On hte negative side of things VTOs recommendations would result in higher childhood poverty levels = lower educational achievement (more morons like helmet), higher poverty related crime levels and lower levels of home ownership.
November 2nd, 2007 at 2:16 pm
i thought grimes/’grimsey’ was driven to an early/impetuous death by homer..
phil(whoar.co.nz)
November 2nd, 2007 at 2:22 pm
Rubbish. Your original statement was a meaningless tautology. What you’ve subsequently posted is a different statement altogether.
Don’t try and sell a backtrack as a clarification you slimy little liar.
November 2nd, 2007 at 2:22 pm
Why not go the whole hog. Move GSt to 15%. Gives $1.7 bn more. Put in the first $10k tax free. Lose 3.3 bn
Put in a transactional tax on land/property flows rather than on the land stock. Similar to the old stamp duty at 10%. Annually would be about $2 bn. Taxes are also about stopping bad things enouraging good.
Make the income tax rate to a completely flat @20% >10k and you get rid of about 6-7 bn. Would free up truckloads of wasted tax advisory resources.
Tag 50% of the personal tax reduction to a productive investment activity aka Kiwisaver 3. So ~4bn in 11 bn out goodbye most of the surplus. Manage the regressive nature of the tax base shifting by using the rest of the residual cash surplus flows. Those on families on only 30k don’t pay tax now, an additional 2.5% GST is only at best $750 pa each. Hell I’d even consider Govt topups for these poor via a tax credit scheme.
Manyy may recall this is very similar to what Roger Douglas proposed in 1986…
November 2nd, 2007 at 2:50 pm
That’s the most sensible thing I have ever heard you say, Philu.
November 2nd, 2007 at 2:55 pm
The land tax would probably precipitate a fall in real estate prices, which would in turn affect the expected revenue of that tax – I wonder whether anything like that is taken into account..?
November 2nd, 2007 at 3:02 pm
Phillip John/Roger Nome:
You’re back to peddling statistics again?
Since this goes directly to your credibility, have you managed to find proof to your claim yesterday that Australia has a top personal tax rate of 59%? Even Wikipedia isn’t with you on that one.
November 2nd, 2007 at 3:35 pm
roger nome -
“The point is that having a more regressive tax system won’t result in a higher proportion of wealthy people as the income distribution will be just as, if not more inequitable. ”
Well obviously the proportions will stay about the same. But isnt it about improving the standard of living? So who cares if the rich are still richer than others? Or are you exposing the true nature of the left – that is, envy.
“And there’s no proof that it would incentivise “wealth creation” as the incentives are already there ”
Sorry – vehement disagreement there. You actually have it round the wrong way. It may not hugely ‘incentivise’ as such but it would definitely remove the disincentive that is currently there. By way of proof – I have explained my own situation of not being as productive as I could due to the current structure. And many others have confirmed they do the same. Proof.
“On hte negative side of things VTOs recommendations would result in higher childhood poverty levels”
Vehement disagreement again. Maybe I ask you for proof or examples this time? Lowering tax rates puts more money into peoples back pockets – hardly increases poverty! Imagine say this weekend – everyone you see walking around the malls and parks and etc having an extra say $20-40 in their wallets. That effect is substantial.
At the end of the day it is the people’s wallets that come first. Once they, and hence their communities, are sorted then the government gets to ask (yeah right!)about taking a bit more. It seems that you and many others here consider it should be around the other way – i.e. govt comes first and the people get what they are told after that. We have a fundamental difference in outlook towards our people and communities.
November 2nd, 2007 at 3:47 pm
oh ok i know its late friday afternoon. time to button off. but one more thing i been tinking …
the land tax is not good. Too many distortions etc. bring in a capital gains tax in lieu.
2c. hooroo
November 2nd, 2007 at 3:56 pm
Yes VTO.
And it’s also been an embarrasing couple of days for Phillip John/Roger Nome. I’m sure he’ll reappear tomorrow and pretend that he always knew Australia’s top personal tax rate was 45% – not 59%. Then at least we could take his comments on Grimes’ proposals seriously. No wait – does anyone take Phillip John seriously?
November 2nd, 2007 at 4:31 pm
No, to the increase in GST.
Yes, to a very decent level of tax free income. I would prefer $20k at the moment but increasing with inflation (as all tax bands should). Simple. Effective. Fair. Right.
HUGE no to the land tax.
November 2nd, 2007 at 4:36 pm
Oh and a huge no for the filtering of money through government for the sake of it.
November 2nd, 2007 at 5:09 pm
I’m a big fan of Keep It Simply Stupid, and the simplest possible system is a flat rate assets tax, say 2%, and no other general taxes. Why oh why continue with income tax AND GST? All we’re doing is making things more complicated (bureaucrats love complexity, how do you think we ended up with the mass of spagette called the tax system that we’ve got?) which creates greater costs and problems for small to middle sized busineses while creating loop holes for the tax (but not nessessarily wealth creating) savy.
As for this pity the elderly rubbish, these days the elderly can borrow against their house and leave the debt to their estate to pay.
November 2nd, 2007 at 5:26 pm
fair points andrew w, but there is something fundamentally wobbly about paying tax on assets. If the tax could also be paid by way of asset, perhaps. But having to raise something different (i.e. cash) for the purpose of paying an obligation on an asset …. I cant find the way to describe it but it just not right. Maybe some more eloquently verbose type out there knows what I am trying to say and can put it into words.
Its not so much feeling sorry for the elderly, its forcing people into income penury (or doing something they cant/wont/dont want to) for the state, etc etc.
maybe its like the state forcing everyone to drive to wellington when some people cant drive, some are blind, some dont even know what car is and dont want to do that with their lives. (Bad analogy methinks).
You cannot force people to borrow, or expect them too, for such obligations. May as well let the state bankrupt them. ridiculous
Me a huge fan of simply stupid too.
November 2nd, 2007 at 5:42 pm
Can I suggest your reservations are more to to with personal philosphy than reasoning?
As has been pointed out, we are talking about a system that is very similar to the rating system, and rates these days can go above 1%, do you see this as “forcing people into income penury” do you think the rating system should be because of this?
The state is always forcing people to do things “they cant/wont/dont want to”
“You cannot force people to borrow, or expect them too, for such obligations.” That’s exactly what occurs today with many people on income tax, they do usually have a cash income but can’t we just accept that planning for future liabilities and costs is part of life, an assets tax is at least predictable and unless assets appreciate significantly stable, if assets do appreciate people who own those assets are financially richer.
The other big plus is an assets tax is visible, it’s not buried in the cost of the shopping and so people are more aware that they are paying that tax and it’s not subject to fiscal drag. if it’s 2% it stays at 2% unless the government takes action to increase it.
November 2nd, 2007 at 5:44 pm
“…should be SCRAPPED because…”
November 2nd, 2007 at 7:29 pm
AndrewW:
This is turning into a good thread.
Just a quick note from me – I’ll try to engage you more fully later.
I’m just trying to reconcile your application of the KISS principle (flat rate assets tax of 2%) and no other general taxes with Jim Anderton’s transaction tax proposal of several years back (which obviously was a political non-starter). The problem with a tax on assets is, however you dress it up, it’ll always be perceived as a form of envy tax and resented by those who pay it. And then there’s the problem of asset definition – real or personal property? What about beneficial interests in property?
My personal view, for what it’s worth, is that we should start with the required level of government expenditure. The left is particularly obsessed with slogans like “tax cuts for the rich” – but we never quite get the balanced acknowledgement from them that not all government expenditure is good expenditure.
November 3rd, 2007 at 12:13 am
POC
The left is particularly obsessed with slogans like “tax cuts for the rich”
Indeed, so much so that the concept of the state having a budget to operate in, a percentage of GDP to to aimed for as a surplus and taxation actively adjusted to maintain that, is not a left or a right concept. It’s a basic good governance matter.
The left seem to like the situation where the state is rich and the people are poor, therefore they conclude that the right must want the people rich and the state poor. Fools.
We should have expectations that the state will actively manage the internal economic conditions to redistribute from higher wealth individuals to lower wealth individuals and to provide first world social services. Not simply for the state to ratchet up the taxes with static thresholds against raising incomes to do stuff all more than bloat administrations and build a monster surplus.
November 3rd, 2007 at 12:51 am
Burt:
Nicely put – I completely agree.
We could have a pseudo-intelligent debate along these lines:
Or we could have an intelligent debate along these lines:
(1) What is the proper and legitimate role of government?
(2) What is the set of measurable objectives underpin that role?
(3) What level of taxation is genuinely and demonstratably required to meet those objectives?
And only THEN do we get into (4) a tax policy discussion.
Many here (particulary the left, I’m sorry to say) seem to prefer the pseudo-intelligent debate around (4).
I’d like to ask Phillip John/Roger Nome for his views on (1)-(3) – but I’ll wait for him to catch up first. He’s probably studying Australia’s top personal tax rate (45% – not 59% as he falsely claimed). Hopefully his answer won’t refer to some obscure NZBR submission back in 1986.
November 3rd, 2007 at 6:34 am
POC
“The problem with a tax on assets is, however you dress it up, it’ll always be perceived as a form of envy tax and resented by those who pay it.”
As is the progressive income tax system.
“And then there’s the problem of asset definition – real or personal property? What about beneficial interests in property?”
Anything that can be bought and sold for cash, here’s a cunning system: let people put their own valuation on their assets IRD (or anyone if such an idea were acceptable) can buy those assets at that valuation. This would include intangable assets but paper “assets” that represent ownership wouldn’t be included, otherwise the assets are effectively taxed twice.
“not all government expenditure is good expenditure.”
As I mentioned above, this is a more visible tax, hopefully harder to increase either openly or covertly, if the growth rate of the public sector can be slowed that would probably improve the efficiency of government spending. However, this is only a form of revenue collection, I have mentioned other ideas to limit the tax grab and improve public spending by removing the state monopoly.
November 3rd, 2007 at 9:52 am
andrew w -
re your post above to my resistance to a tax on assets and forcing people into income penury – I do actually think the whole rates system is flawed and rates as a cash obligation against a non-cash item does the same thing. Funding of local govt by way of rates is seriously overdue for reform. It is based on a very historical system, the reasons for which have long since expired, and is another story in itself.
So yes, I dont like the rates system either for the same reason (among a couple of others). And it is based on reason not so much philosophy.
And re forcing people to borrow to pay a tax in this way doesnt actually happen now with cash/income, despite your assertion. Not unless there is poor management of the cash/income as it ‘comes in’.
You have not convinced me at all – I dont see any strength to your argument.
People should not be forced by the state to go into debt.
November 3rd, 2007 at 10:44 am
“Funding of local govt by way of rates is seriously overdue for reform. It is based on a very historical system, the reasons for which have long since expired”
It certainly is no more based on a very historical system than income tax eg. the king gets 1 in 5 bussels of the farmers yeild, the rating system is the most easily administered tax system we have, if there is a problem it has nothing to do with how the money is collected but rather how it is mis-spent.
Even Bob Jones, the man who has said “taxation is theft” has described it as “not a bad system”.
“And re forcing people to borrow to pay a tax in this way doesnt actually happen now with cash/income, despite your assertion. Not unless there is poor management of the cash/income as it ‘comes in’.”
And it wouldn’t “need” to happen under an assets tax except for the same reason, and for the same reasons people “need” to borrow money to buy cars, pay bills etc, if people want to escape paying assets tax, don’t own assets, people can’t escape income tax so easily.
“People should not be forced by the state to go into debt.”
It would be their choice how they managed their financial affairs, they would actually have more financial freedom than exists with todays raft of taxes, designed with complexity to stop people escaping, but still often failing to do so.
November 3rd, 2007 at 10:51 am
andrew w – your analogy re cars and its comparison to tax is flawed. people arent forced to buy cars, whereas people would be forced to pay this tax as you suggest.
and it would not be “their choice how they manage their financial affairs”. That is my whole point. There would be no choice – they would be forced into debt.
So if someone with say an income of $20k p.a. is faced with a $20k p.a. tax bill due to some non-cash producing asset how do you propose they pay it?
November 3rd, 2007 at 11:28 am
Think of the tax as a living expense, if you choose to live expensively, expect it to cost.
“So if someone with say an income of $20k p.a. is faced with a $20k p.a. tax bill due to some non-cash producing asset how do you propose they pay it?”
A $20k tax bill at a 2% tax rate makes the asset worth $1000k, if it gives them a $20 return they should sell it so that someone who knows how to run it properly can do so, if you’re talking about a house I suggest they settle for a $400k house and invest the balance, a 5% return that would yeild $30k/yr.
As you can see another attribute of such a tax is that it would discourage people sitting on assets that weren’t being efficiently utilised, both capital assets and consumer assets.
November 4th, 2007 at 12:30 pm
andrew w, too nice a weekend to be on the computer, but fundamentally we have different ideas of the role of state i think.
the people i have in mind re this absolutely do not choose to live expensively. and they do not live expesnively
tax is not a living expense. the state is there to serve usnot the other way round bro.
if you think people should sell their homes to pay tax then we are on different planets.
November 4th, 2007 at 2:20 pm
“..fundamentally we have different ideas of the role of state i think.”
clearly that is the case, I view the state as a over weight monster that needs to be controlled, never to be expected to return more than it takes, you seem to view it as a Super Santa, “there to serve us not the other way round bro.”
“the people i have in mind re this absolutely do not choose to live expensively. and they do not live expesnively”
Even though they apparently live in million dollar houses, but can’t afford 20K tax bills? If you check through recent threads you will find comments by people who have far larger tax bills under the present system, and references about people on very high incomes who use trusts and possibly other loop holes to escape income tax.
“tax is not a living expense.”
There is nothing special about the state other than it is the ultimate monoploy, unlike any other organisation, the only way to escape its grasp is to emmigrate, don’t put it up on some sort of pedistal, expecting anything special from it, it, and its demands are just more of those little hurdles in life.
“if you think people should sell their homes to pay tax then we are on different planets.”
It would be up to people how to deal and adjust to such a revenue gathering scheme, whatever suits them best, I’ve only offered some possible solutions, getting a job and robbing a bank are others, ditto if they have a big phone or power bill to pay, again tax is nothing special.
November 4th, 2007 at 8:50 pm
i hate the state in its current form and absolutely do not consider it a santa.it is an ever-expanding bubble (overweight monster). i agree with you re most of what you say, but i will not accept the imposition of a tax on an asset in this manner.
Dont you understand? The reason their homes are supposedly million dollar homes has nothing to do with them. Why on earth should they be forced to sell to meet some state obligation? It is their home and always has been. To have the state come along say 50 years after they built it and raised families and retired in it etc (in one style example) and force them out of their home is state power gone mad. It is the sort of thing that brings down govts.
tax is not the same as other living expenses liek phone and power bills.
You clearly think people should be forced out of their family home to satisfy some state tax due solely to a valuation that the rest of the world puts on that familys home.
the state can fuck off.
are you quite a young chap?
November 4th, 2007 at 8:53 pm
you sound like some evil medieval tax collector turfing the poor out of their sod hovels and into the street (blackadder style without the humour)
November 4th, 2007 at 8:55 pm
and my statement that ‘the state is there to serve us not the other way around’ I think you have construed completely arse about.
what you advocate is us serving the state. I am not a subject of the state.
November 4th, 2007 at 10:22 pm
“i hate the state in its current form and absolutely do not consider it a santa.”
Ditto, I’ve suggested alternatives on older threads.
“The reason their homes are supposedly million dollar homes has nothing to do with them. Why on earth should they be forced to sell to meet some state obligation? ”
Why? if interest rates go up and people are forced out because they can’t pay the mortgage it’s not their fault!
If I’m hit by a truck and can no longer work it’s not my fault!
Sometimes things don’t work out as we would like if it’s an obligation to the bank instead, why on earth should they be forced to sell to meet some bank obligation?
“To have the state come along say 50 years after they built it and raised families and retired in it etc (in one style example) and force them out of their home is state power gone mad.”
That’s why smart people plan for their retirement, I can find you lots of good hard working people who struggle to feed their families, pay the power bill, buy school uniforms, never go on holidays etc, if they accept that having a family was their choice and their bills are their responsibility they have my respect, If they want to bitch and complain that it’s everyone elses fault, or the states fault they don’t.
“You clearly think people should be forced out of their family home to satisfy some state tax due solely to a valuation that the rest of the world puts on that familys home.”
Crap! In such a situation they – didn’t – plan – for – their – retirement. Got it yet?
“are you quite a young chap?”
Are you in your 1st or 2nd childhood?
“you sound like some evil medieval tax collector turfing the poor out of their sod hovels and into the street ”
The tax rate on hovels would be the same, what’s a hovel worth?
You sound like a fair weather capitalist, bad weather socialist; Capitalism when it suits you, socialism when it suits you.
“what you advocate is us serving the state. I am not a subject of the state.”
Good for you! Refuse to pay your income tax if that’s what you believe.
November 5th, 2007 at 8:20 am
you just don’t get what I am trying to say. Maybe I am not explaining it very well.
This statement of yours seems to sum it up – “Sometimes things don’t work out as we would like if it’s an obligation to the bank instead, why on earth should they be forced to sell to meet some bank obligation?”
That is entirely my point. People can choose to take on such an obligation as that with a bank, or walking in front of a truck, etc and they should face up to any consequences that arise from that in the future. But this asset tax would be forced upon them by the state! You seem to think there is some choice to it. There is not. that is my point.
And dont compare it to income tax or GST or others – it is entirely different. People can choose not to earn an income and grow their own food and not own a car and not use cash or partake in society. There are people who do that now. They can do all of that now without incurring income tax or GST obligations to the state (council rates excepted, as previously covered). Or at least keep them to a very low level. What you propose would blow them out of the water. And as far as I am concerned the state shold not have that sort of power or effect on peoples chosen way of living.
Me – “You clearly think people should be forced out of their family home to satisfy some state tax due solely to a valuation that the rest of the world puts on that familys home.”
You – “Crap! In such a situation they – didn’t – plan – for – their – retirement. Got it yet?”
What do you mean crap? That is exactly what would happen – people would be forced from their homes. Explain what part of my statement is wrong.
“Good for you! Refuse to pay your income tax if that’s what you believe.”
Man, think about what you are writing about. We have been talking about a tax on an asset, not income tax! Bloody hell.
and you have something about me a little bit right – capitalism with a smattering of socialism. You seem to be 100% capitalism.
heated discussion. peace.
November 5th, 2007 at 2:16 pm
I think we are just going round in circles, refusing to understand each others perspective.
“But this asset tax would be forced upon them by the state! You seem to think there is some choice to it. There is not. that is my point.”
Presently, if you have an income, income tax is forced on you by the state. It’s easy to get out of paying income tax – quit your job, sell income generating assets. It’s even easier to get out of paying an assets tax, sell the assets you have and put the money in the bank. (cash in the bank wouldn’t be included in my definition)
“as far as I am concerned the state shold not have that sort of power or effect on peoples chosen way of living.”
I see the simplicity of an assets tax making it easier for people to choose
alternative life styles, Fred buys a bach on the lake say for $200,000 (nice bach) annual tax bill $4000, he then finds casual work, at $15/hr, so he can pay that tax with just 267 hrs work a year, because there is no income tax (and preferably no ACC) it’s easier and cheaper for an employer to employ him on an informal basis, no IRD paper work, Fred doesn’t need to deal with red tape and men in suits, the tax he pays dovetails with his insurance plan, easy peasy.
My comment: “Good for you! Refuse to pay your income tax if that’s what you believe.”
Was in response to your claim “I am not a subject of the state.”
If that were so you wouldn’t be subject to the rules of the state, you are.
“You seem to be 100% capitalism.”
Given Redbaiters numerous and ofter nasty attacks on me, including changes that I’m a communist, that’s very very funny.
Kind regards
November 5th, 2007 at 3:44 pm
agreed, circles.
funny thing about this for me personally has been that in the not too distant past, due to my resistant to the rates structure mentioned earlier, i figured ‘what on earth is wrong something like a poll tax margaret thatcher style’? You know – user pays and all that. I could never figure out why there was such vehement opposition to it. But my opposition to this idea for an asset tax like this is similar I think, philosophically, to the opposition to a poll tax.