Go Treasury Go

October 8th, 2009 at 2:27 pm by David Farrar

The Herald reports:

Bold reforms and changes to the mix of monetary and fiscal policy are needed if New Zealand is to rebalance its economy and close the gap with Australia, according to the ’s head.

New Zealand needs to overhaul its tax system, bringing down income tax and potentially increasing GST or imposing a land tax, Treasury Secretary John Whitehead told a business audience in Queenstown last month.

I agree.

Tags: ,

34 Responses to “Go Treasury Go”

  1. Angus (536 comments) says:

    …trouble is, the Nats won’t have the nuts to go with such advice.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. side show bob (3,660 comments) says:

    Oh great more double dutch. So a tax overhaul involves the raising of one tax and the introduction of a new one. Gee, with friends like the tax department who needs enemies.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. stephen (4,063 comments) says:

    SSB, that’s Treasury ‘speaking’ not the IRD.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. Manolo (13,746 comments) says:

    More talk of the same kind we’ve heard over last twenty years.

    There will no action on taxation from an increasinlgly aimless National Party government. If only Key and English had the guts to take these recommendations seriously.

    On the other hand, National prefers to spend time and money pursuing higher taxes via the dreadful ETS.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Alistair Miller (499 comments) says:

    Australia has an incredibly complicated tax regime. The lowest earners are taxed much less than in New Zealand (including a tax-free threshold), but high earners are taxed much more than in New Zealand. In addition there are many deductions available which serve to reduce the tax paid by higher income-earners ,and there are incentives to take out medical and income-protection insurance. They also have a rort called Stamp Duty (remember that?) which swells the coffers of the State Governments (in addition to the GST revenue they get).

    I agree reform is needed (real reform, not just silly tinkering with the thresholds), including flattening and lowering income taxes, and raising consumption taxes. It also needs to include better enforcement mechanisms to collect tax that is owed (including changes to the corporate veil). I’m not sure anyone should be looking to Australia’s regime with envy.

    And also, WTF is our obsession with Australia? We have the perfect leagues tables in the OECD reports. Let’s start by moving up one place on the tables, then one more, and so on. Let’s not look at the country that sits firmly in the middle(ish) with envy; why would we strive for mediocrity?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. annie (539 comments) says:

    Raise GST and die.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. bchapman (649 comments) says:

    If you want more land tax all you have to do is raise council rates. The NZ govt can pocket the GST.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. gazzmaniac (2,307 comments) says:

    Raise GST and get rid of company and income tax. Then we won’t have a stupid discussion about capital gains tax.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. wreck1080 (3,905 comments) says:

    However, Key has backed himself into a corner by promising not to reform.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. PaulM (2 comments) says:

    I said it to Danyl and I’ll say it to you… Herald….? Hmmph….
    PB.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. Repton (769 comments) says:

    I thought you didn’t like the idea of taxpayer-funded organisations lobbying the government..

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. Scorpio (415 comments) says:

    What gazzmaniac said. Please.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. Peter Cresswell (48 comments) says:

    New Zealand needs to overhaul its tax system . . . potentially increasing GST or imposing a land tax“!

    No Treasury No!

    [DPF: You clipped the bit about reducing income tax rates to compensate]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. Leonidas (1,431 comments) says:

    So, really, my money will still be going out, just through a different door?.

    I’m no fiscal genius, so please explain how that would not be giving with one hand and taking with the other?.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. Jeff83 (745 comments) says:

    Where the heck did my post go?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. Chthoniid (2,044 comments) says:

    The theory is to make taxes lower and flatter, by broadening the base.
    The higher a tax goes, the harder the discouragement of that activity kicks in.

    Historically we’ve depended on heavily on taxes on incomes and profits. That discouraged income (and profit) generation and advantaged activity that avoided taxes. Better to buy a racehorse than a new technology for a factory. Better to speculate on houses than get a science degree.

    GST nudged us a bit away from this dependence, and unsurprisingly, reinforced income tax cuts in the early 90s that got the economy moving faster.

    When income taxes go up, people work a bit harder or longer or invest more in themselves and their businesses. The counter is that income tax increases do the opposite.

    When Labour punched my taxes to 39% I folded up my consultancy work in Asia. With increases in ACC and increases in income tax, it just got easier to not bother. You can’t imagine the hilarity in this household when Helen pleaded for NZ businesses to engage more with Asia. There’s not a lot of point when it’s both damned hard work and when most of the income gets taken off you.

    In short, anything that can get your income tax down is a good thing. Lower, flatter and broader taxes makes the most economic sense. It tends to make the worst political sense though because it is harder for politicians to reward supporters (have some benefits Labour voters) and penalise opponents (have a tax increase rich pricks).

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. Peter Cresswell (48 comments) says:

    @DPF: I clipped the bit about reducing income tax rates to compensate because:

    a) I presumed everyone reading the thread had already read that; it’s only a short post, and they would have seen it just above your cheering.
    b) Even if income tax rates were to be “reduced to compensate” in the aggregate, that won’t stop many individuals being done over by the change in the individual. Some will do better by a rise in GST — most will do worse.
    b) Finally, if you really believe that income tax rates would genuinely be reduced in any case, then I have a bridge I need to sell you.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. OECD rank 22 kiwi (2,752 comments) says:

    I agree

    John Key and Bill English don’t to judge by their actions.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. annie (539 comments) says:

    Sorry, when I said “raise GST and die” before, I meant only electorally speaking.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. LC (162 comments) says:

    Isn’t GST on rates a tax on a tax?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. redqueen (562 comments) says:

    The property tax idea isn’t such a bad one, especially if it actually reduces land costs as people realise sitting on something solely for the capital gain isn’t productive. GST I’m a bit more mixed on, as it will raise quite a bit of money, but it will be seen as a regressive imposition by National, as compared with a property tax (or a Land Value Tax, more properly) which can be sold as taxing those who actually aren’t using their land. To quote Churchill, in regards to the the taxation of land compared with investment taxes, ‘In the first speculation [land ownership] the unearned increment derived from land arises from a wholly sterile process, from the mere withholding of a commodity which is needed by the community. In the second case, the investor in a block of shares does not withhold from the community what the community needs. The one operation is a restraint of trade and in conflict with the general interest, and the other is part of a natural and healthy process, by which the economic plant of the world is nourished and from year to year successfully and notably increased.’

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. bruceh (102 comments) says:

    Key and English didn’t listen to Treasury in setting their first budget, chances of subsequent listening seems low. The dynamic effects of delays to reform are huge and massively costly. A golden opportunity was lost for wont of communicating realities to the public by using Key’s political capital to sell the benefits. NZ’ers now keep getting poorer in relation to others. This is why the ‘obsession with Australia’ is relevant – because people get on a plane and go, as they do.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. burt (8,269 comments) says:

    bruceh

    If they had listened to treasure then they might not have got a second term and we all know that nothing is more important than a second or a third term…

    However if they get a second term and don’t make radical changes then all doubt that they are just a Labour-lite solution will have been removed.

    I was disappointed they didn’t grab the bull by the horns and make their first budget a strong signal that mediocrity and middle class welfare are no longer fashionable.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. Viking2 (11,467 comments) says:

    Why we are discussing CGT.
    Its clear that many large companies decided it was fun to rort the tax base, especially Australian ones. IRD have quoted 15 companies. Two have now lost in court and between them the amount owed is nearly 1.5 billion. Now I recall that The Secretary of Treasury said the other day that 1.5 billion CGT would allow the tax rate to drop to 30%. The logical conclusion is that the IRD and the courts and Govt. need to toughen up their tax collection from those companies especially from offshore that have been advised by NZ tax lawyers on how to rort our tax base and repatriate the profits of shore.

    Todays report is about Westpac who are no2. in the que at court after BNZ. There are four other banks to follow and another 12 or so major companies including the likes of Toll holdings who have already had a large sum donated to them by Cullen. No wonder the long suffering tax payers are failing.

    IRD wins against Westpac

    By GARETH VAUGHAN – BusinessDay Last updated 12:12 08/10/2009

    The Inland Revenue Department is welcoming a ruling from the High Court in Auckland ordering Westpac to pay $961 million in back taxes.
    In a decision released today, Justice Rhys Harrison has ruled the “structured finance” transactions were “tax avoidance arrangements entered into for a purpose of avoiding tax,” IRD said.
    “The Commissioner has correctly adjusted the deductions claimed by Westpac in order to counteract its tax advantage gained under an avoided arrangement,” he said in the ruling.
    The judge added that the total amount of tax at issue was $961 million including voluntary payments of $443 million made by Westpac under protest.
    Justice Harrison said the bank was lucky IRD didn’t attack other parts of the transactions in dispute.
    “I have rejected Westpac’s primary arguments on all contested issues,” he said.
    Westpac’s New Zealand CEO George Frazis said the bank was very disappointed with the decision.
    He said the bank would take time to go through the detail of the 204 page judgment and would be considering an appeal.
    Inland Revenue claimed unpaid tax and interest from Westpac for the 1999 to 2005 tax years, for transactions between 1998 and 2002.
    The Commissioner of Inland Revenue, Robert Russell, said the decision supported Inland Revenue’s long held view that the transactions were tax avoidance.
    “This is the second significant decision in our favour involving banks and this type of transaction, and we’re very pleased with the outcome.”
    In July, in a separate case, Justice Wild ordered the Bank of New Zealand to pay $416 million in back taxes after a 13-week hearing in the High Court in Wellington.
    BNZ has said it will appeal the ruling in its case.
    Frazis said Westpac had always believed the transactions were commercially justified and complied with the law.
    This was especially due to Westpac obtaining a ruling in 2001 from the Commissioner of Inland Revenue on a similar transaction confirming Westpac’s view that a transaction of this type satisfied all tax laws.
    Westpac said the judgment found in favour of IRD on four transactions. When taking into account all nine transactions, the cost would be $918 million comprising $586 million in core tax and $332 million of interest.
    The bank will review appropriate provisions as part of its annual results, which will be announced on November 4.
    If it lifted existing tax provisions to $918 million, this would impact the bank’s Tier 1 capital ratio by about 25 basis points. Any change in provisions would not be included in cash earnings.
    “The Westpac Group maintains a Tier 1 ratio well above its target range and is able to meet any additional tax that may be payable as a result of the judgment,” Frazis said. “This judgment will not impact our day to day operations in any way.”
    The Westpac case is the largest of six challenges by foreign-owned New Zealand banks against the IRD’s argument that the ultimate purpose of structured finance loans was tax avoidance.
    Banks such as Westpac raised funds on the money market or out of its reserves and lent it to a company – often using the cash to buy equity in the company to the value of that loan on the proviso the company sold it back to the bank at a specified price at a specified time.
    The transactions were considered by the banks to comply with the tax legislation at the time, and Westpac was not the only large bank to engage in the deals.
    All the Australian-owned ”majors”: Commonwealth Bank’s ASB, National Australia Bank’s BNZ, and ANZ, carried out similar transactions and, like Westpac, now find themselves the subject of a crackdown by the Inland Revenue Department.
    The department has argued the loans were a ”sham”, and an attempt to avoid tax. The final bill for the banks combined could top $1.9 billion if the department succeeds in recovering the total sum it has claimed.
    In August, NAB set aside A$524 million to cover its ”worst case scenario” should BNZ lose its latest appeal to overturn the tax claim.
    ANZ has an exposure to $405 million, over which it holds ”appropriate” but undisclosed provisions, while ASB may end up with a tax liability of $280 million.
    Westpac was issued amended tax assessments for the financial years 1999-2005, which had the IRD claiming A$485 million. This has ballooned with interest and likely penalties if the court rules the bank should pay up.
    Westpac disputes the IRD claim and the two sides went to court again on June 30 to seek a decision on the case.
    Westpac said it had obtained a ruling from tax officials on a similar transaction in 2001 that indicated that such arrangements were legitimate.
    Edit/Delete Message

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. adam2314 (377 comments) says:

    gazzmaniac

    No company tax and no income tax keep the GST but with no claw back.

    The old KISS system .

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  26. reid (16,442 comments) says:

    GST affects poor people much much much more than you and I. Period.

    Poor people and by that I mean those who get by paying their mortgage and running their family with little to no surplus spend: i.e. almost all their income goes on GST-able goods and services. Sound familiar?

    Now as the govt, are you really keen on driving increasing numbers of those people into bankruptcy?

    That’s why they don’t do it. And rightly so.

    I was amused that press release on the Tax Working Group covered a proposal that included taxing the family home. That’s frankly insane. They need to tax “investment” property – that’s been obvious since the 80’s. To make it palatable you need to exclude the family home, the bach (provided you can distinguish that from an “investment” property) and a nominated asset like a boat.

    Everything else, tax away. You could put max limits on those secondary assets like say $1m max for a boat, above which it’s all subject to capital gains.

    That would preserve the Kiwi lifestyle and give them revenue. Strangely, that concept wasn’t heavily covered in the press releases today.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  27. jackp (668 comments) says:

    I like the flat tax. In Europe it is working well. 20 percent personal and 15 for businesses. Also, lower the billiions wasted by government. This would keep check on inflation. Key and English are trying to rape the public for more taxes through their ETS scheme. This whole idea to look at raising gst and property tax is rediculous. It won’t fix the real problem—– BUREAUCRACY SPENDING which has to stop. Government spending is like hole in the hull of a boat. Keys and English are looking for bigger buckets which won’t keep the boat from sinking.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  28. Redbaiter (13,197 comments) says:

    “Finally, if you really believe that income tax rates would genuinely be reduced in any case, then I have a bridge I need to sell you.”

    Not the damn point dopey. If one was seeking an overall reduction in tax take, it would be reflected in general tax receipts (adjusted by economic condition), not income tax rates. And anyway, the whole point of the scheme is not to reduce or increase tax but to restrucuture to take out “imbalances”. I haven’t read all the detail as yet, but from what is in the report Mr. Farrar refers to, there’s little to justify your article or the ranting of your usual mind fucked sycophants.

    Especially as Key and his gang are unlikely to act on the ideas.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  29. Anthony (796 comments) says:

    NZ does have to do things differently (well, better) than Aussie if it wants to improve its OECD ranking because it doesn’t the advantage of huge mineral resources, etc.

    When will people acknowledge that NZ hasn’t paid its way since 1974 and really needs to get its shit together if it doesn’t want to truly become a quaint green (in the literal sense) little outpost at the end of the world owned by rich foreigners?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  30. burt (8,269 comments) says:

    reid

    Adjustments to the low income assistance benefits would take care of an increase in GST very effectively. Arguably a single benefit of the GST portion of [some threshold] would be the easiest way to administer it.

    The threshold could be based on the full time min wage, median wage, average wage or something else entirely. It’s a level at which we agree the regressive nature of GST has been abated satisfactorily according to how we view min standards of living.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  31. adc (595 comments) says:

    land tax?

    What about a window tax? It’s about as relevant.

    Why tax people just because they have land?

    Sheesh.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  32. Alan Wilkinson (1,878 comments) says:

    I see the IRD bean-counters estimate that a 1% land tax would reduce NZ land prices by 25%. That would make the current recession seem like boom times and produce a bumper crop of bankruptcies, business failures, joblessness and emigration compounding all of these.

    Truly a classic case of unintended consequences.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  33. Alistair Miller (499 comments) says:

    I wonder, since we’re talking about taxes generally, and several commenters have posted about consumption tax (GST) specifically, if there are stats on how many GST returns are overdue for lodgement and how much GST is unpaid. GST is supposed to be collected and held in trust for the crown, then paid when the return is filed. It is my experience that often it is not (I made a commnt about this on Cactus Kate’s blog the other day). If we’re going to broaden the tax base (which I disagree with), or decrease income and/or company tax rates (which I agree with) in favour of increased consumption taxes, then we need to get a shitload better at collecting the returns and the dues. The thing about income tax, especially for wage slaves, is that it is easy to collect. Consumption tax, especially the current GST regime, relies on the provider submitting their return (which many don’t) and then paying the tax due (which many don’t). Before making the tax base more complicated by introducing new taxes, surely we need to ensure whatever regime is put in place is actually enforceable?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote