Dom Post on Tax
The Dom Post editorial:
The tax working group established by the Government doesn’t expect to report its findings before Christmas, but it is clear already that ministers will get more than they bargained for.
The group, set up to explore ways of aligning the top personal tax rate with company and trust rates, has carried out a root and branch review of the tax system. Its findings make for sobering reading.
The system is inefficient, counter-productive and unfair. The tax burden is being disproportionately borne by wage and salary earners who cannot restructure their affairs to take advantage of vagaries in the system.
The high proportion of the total tax take gathered from company and income tax increases the incentive for individuals and businesses to shift overseas. And the differing rates at which earnings on different types of investment are taxed is distorting investment decisions.
Yep, the current tax system is sub-optimal at best.
The group’s goal is not just to broaden the tax base but to make the system fairer and more efficient and to reduce the incentives for people and businesses to shift overseas by taxing things that are fixed, such as land and buildings, rather than things that are mobile, such as capital and labour.
This is pretty important. The more you tax capital and labour, the less there is to tax.
A property or land tax would have the added benefit of encouraging investment in productive enterprise by making investment in property less attractive.
Well it is not so much that there will be less investment in property, but a land tax will encourage land owners to get higher economic returns from their land, which is one way to lift economic growth.
The best tax brains in the country have given the Government a chance to make the system fairer and the economy more efficient. Doing so is in the long-term interests of everyone. The Government should grasp the opportunity.
I agree. It would be easier to do, if the crown accounts were in surplus. But even without that luxury, some change must happen.
December 7th, 2009 at 11:14 am
This sounds like the real tax review. I hope National’s implementation of the recommendations are not sub-optimal.
December 7th, 2009 at 11:23 am
“Yep, the current tax system is sub-optimal at best.”
Sub optimal??
Geez, don’t be so harsh.
Look. You’re shifting the deck chairs on the Titanic. NZ is stuck fast in a cycle of tax and spend that has made millions of NZers dependent on high taxation of the productive sector.
This situation has arisen because politicians over the last few decades have increasingly used vote buying as a means to obtain political power.
A morally bankrupt strategy that can only ever work in the short term and in the long term can only end in an outcome as prophesized by Sir Alexander Tytler. ( a democacy will eventually cease to exist after voters start believing they can award themselves money from the treasury)
For if a country continues to punitively tax the productive sector to provide a living for the non productibve, it is inevitable that the producive will eventually cease to exist.
This country does not really need to think about changing the tax system so much as it needs to think about a whole new approach, such as a Constitution that removes the opportunity for politicians to buy votes, and thereby removes the chance for cynical power grabbers to exploit democracy to the point they destroy it.
December 7th, 2009 at 11:26 am
“The group, set up to explore ways of aligning the top personal tax rate with company and trust rates, has carried out a root and branch review of the tax system. Its findings make for sobering reading.”
Shit its not hard and the report should be one line. “Lower top personal, company, and trust rates to 20%”. Mission accomplished, all rates are now aligned. Govt may have to set up a different group looking at where to take the axe to wasteful spending, but so be it.
December 7th, 2009 at 11:38 am
Yeah!
What he said.
December 7th, 2009 at 11:59 am
Any tax system where tax can be avoided will be sub-optimal and inequitable. The income of salary and wage earners is one of the few items on which tax cannot be avoided. The tax base will get worse too if NZ keeps on exporting work.
The arguments that taxes ‘distort’ the economy have to be tempered by the requirement to exact sufficient to the meet the needs of the state. Ultimately we can only borrow for term capital investment. A real question is have we been too generous in paying ourselves through transfer taxes?. Also have we too much government to support? It is going to be increasingly difficult to tax larger corporates with their ability to shelter income internationally.
Land tax was thrown out years ago because it brought in little revenue and was proving a nuisance to collect. Capital gains taxes in NZ have been deprecated because of the work required to get equitable deductions: relief on capital losses follows taxing capital gains. If you have ever had to deal with taxpayers arguing over allowable deductions you would not want to go there readily. GST has proved to be largely inescapable. What ever we do is going to have to be a source-based income-related tax to increase the tax base. Taxes on financial transactions should be considered too. Why not tax all quoted shares sales at say 2% without deduction for any costs. Likewise finance company debenture payouts, T Bills etc, The rates may have to differ between classes but that is trivial to a computer. Bonds could be rated by their nominal term and may be taxed at say 0.05% upwards.
Purists will use the ‘distortion’ word again but taxes need to be economical to collect and inescapable. As with GST a small change to any benefits will make up for the sideways imposts. The benefits too need to be considered, are we being too generous? We cannot please all..
December 7th, 2009 at 12:11 pm
i look forward to my tax cut in 2012. the announcement coming just before the next election. cocksuckers.
December 7th, 2009 at 12:32 pm
Apparently if you are an entertainer you can make use of those sorts without to much risk of being outed.(cocksuckers are what I’m talking about here.) Like that name we may wait a long time for the tax cuts.
Neither Nat. leader has the gonads to make good effective changes. There is nothing new in the way of idea’s being promoted. Its all been said before but until we restrict the power of Govt.’s of various shades and hues to tax at will and spend at will nothing will be effective. Until that restraint is in place we will continue to be screwed at every opportunity.
As redbaiter said we need a written constitution to sort this out or at the very least a Law such as Hong Kong has which absolutely limits the amount of tax the govt can take. No doubt there are a few including Cactus Cate that can fill in the details of that law.
But the saying goes that Turkeys don’t vote for Xmas and neither will many of the bludgers that call them selves politicians.
Which reminds me speaking of Xmas Turkey.
New recipe for cooking same.
Prepare turkey using popcorn as stuffing. Fill turkey and sew together rear opening.
Place in oven or Microwave with neck at door end.
You will know when its ready as the arsehole blows and the turkey clears the door and lands on the plate at the table.
Merry Xmas.
December 7th, 2009 at 12:36 pm
Let’s face it, politicians have become expert at designing the tax system to introduce politically popular taxes and avoiding politically unpopular ones at the same time.
Is there any other reason we do not tax all capital gains equally or we hand out a rebate after taxing everyone (Working for Families).
The rabbit in the headlights approach when tax reform is mentioned really needs to stop.
December 7th, 2009 at 1:01 pm
“As redbaiter said we need a written constitution”
That’s a good idea, and do away with the old crowned biddy, but it’s not going to happen anytime soon due to the conservatives.
Radical change is not the answer, it is highly risky and tends to create at least as many problems as it solves. One of the best ways to prompt a revolution is to kick the masses in the balls, it is usually the masses who revolt, not the ruling and capitalist classes.
The key to change is the right balance of bold. The key to change is enabling business to prosper, and unless they want to outsource everything and evacuate most of the population that means nurturing a good workforce.
The key to change is Key. Politically he can afford to lay out a five year plan in 2010. If he can lead his party that way.
December 7th, 2009 at 2:25 pm
John Key, I’m afraid if you’re going to talk the talk, you’ve got to walk the walk. And you ain’t producing the goods.
We’re going to slip further and further beneath aussie. The only consolation, is that the decline will be slower than it would have been under a labour administration. Labour had no clues at all.
December 7th, 2009 at 3:08 pm
I bet Weldon didnt push for a capital gains tax on shares, Morgan no doubt wants an advantage for his kiwisaver products, John Shewin wants a tax cut for his corporate clients. More self interest in this one than the 2025 Taskforce.
The distortions that are talked about are as much a result of rubbish capital markets and poorly performing and expensive fees for super products. NZers love affair with housing is as much about lack of alternatives than anything else, damn sure I dont want to be a landlord but with the almost complete lack of regulatory oversight its a bit wild west out there.
Up until Cullen went nuts we had massive surpluses so in reality the problem is too much spending rather than a broken tax system, compared to many other countries NZs is actually very good, aside from needing to move the threshold for the top rate to a 100k.
December 7th, 2009 at 3:28 pm
So reduce government spending by 30-40%. If it means that the middle classes cannot get new cell phones and ipods (as per the WFF ads from 2005) then so be it. A few years of medicine will prevent decades of pain.
December 7th, 2009 at 3:29 pm
I find it interesting that right-wing types always say that lower taxes will stimulate the economy, and yet it seems we can only afford lower taxes when the economy is already doing well (e.g. five years ago).
December 7th, 2009 at 4:22 pm
I would say that politicans only attempt to lower taxes when the economy is already doing well as it is an easier sell to the electorate for tax cuts to come out of an existing (or budgeted) surplus than to convince them that if we cut taxes now, it will stimulate the ecomony and pay for itself in the future through that economic growth.
December 7th, 2009 at 7:55 pm
New Zealand] is a beautiful place with boundless opportunity. So I won’t accept that the bottom third of the OECD for average income is where we rightfully belong. I simply won’t believe we have to put up with losing 80,000 of our people every year to other parts of the world. I am horrified that the gap between our wages and those in Australia are now wider than they have been in our history – at more than 35%. How can we hope to hold on to our young people, the educated, the talented, the motivated, if on the Monday you can earn $50,000 for doing one job and on the Friday earn $80,000 by simply moving across the ditch? If we stay on the same growth course and speed, by 2030 the gap between wages here and wages in Australia will have risen to over 60%. We have a plan to steer New Zealand on a course to a more prosperous future. And we need to get to work on that plan straight away. John Key, “National’s Blueprint for Change”, January 2008.
An extraordinary debate has been raging over the last week about what is probably the most important question of the decade: do we as a nation want a more prosperous future, or are we prepared to accept the continuing decline in living standards? This is the critical issue that is at the heart of the discussion over the report of the 2025 Taskforce which was released last Monday.[1]
The 2025 taskforce, headed by the former Governor of the Reserve Bank and leader of the National Party, Dr Don Brash, was part of the Confidence and Supply agreement between National and ACT. Both parties had campaigned on catching Australia during the 2008 election, largely in response to the Labour Government’s dismal failure to achieve their stated goal of lifting New Zealand’s economic performance into the top half of the OECD during their nine years in power. Sensing the public’s mood to support a future where New Zealand’s living standards are rising rather than falling, both parties pledged to prioritise policy goals aimed at closing the income gap with Australia. That made the setting up of the Taskforce a mutual objective.
The National-ACT agreement states: “National and ACT have joint aspirations for greater prosperity for New Zealanders, and see Australia as a benchmark. They have agreed on the concrete goal of closing the income gap with Australia by 2025. This will require a sustained lift in New Zealand’s productivity growth rate to 3% a year or more. Both parties recognise that achieving this goal will require significant improvements in New Zealand institutions and policies. Their joint commitment to limited government – government limited to its proper role – and greater economic freedom will need to be consistently adhered to. To that end they have agreed on the establishment of a high quality advisory group to investigate the reasons for the recent decline in New Zealand’s productivity performance, identify superior institutions and policies in Australia and other more successful countries, and make credible recommendations on the steps needed to fulfil National’s and ACT’s aspirations. The advisory group will report annually on the progress made to improve the quality.”[2]
The report released by the 2025 Taskforce clearly shows that New Zealand has lost its way. This country that was a beacon for hard working immigrants from around the world, who wanted a better life for themselves and their children, has now become, according to John Key, “a breeding ground and giant education facility for Australia”. Over the last 10 years, a net 260,000 skilled workers have left New Zealand, mostly for Australia where average incomes are 35 percent higher than they are here. That means that for a family of four, the gap is worth around $64,000. This is the critical issue – no country can prosper when so many citizens vote with their feet for higher living standards.
What is so disappointing about the Prime Minister’s response to the Taskforce’s report last week was the derisory way in which he dismissed the recommendations, and in so doing undermined the pledge given to the ACT Party to take parity with Australia seriously.
By labelling the central proposition that government spending needs to be reduced so that taxes can be lowered as “radical big bang reform”, John Key did the 2025 project – and the country – a huge disservice. Further, he has raised serious questions about the sincerity of his own election pledges and whether he is like so many other politicians who compromise good intentions once they are in power: “I came into politics because I believed New Zealand was underperforming economically as a country. I don’t think it’s good enough that so many New Zealanders feel forced to leave our country each year to seek higher wages in Australia. I don’t think it’s good enough that our average incomes lag so far behind the rest of the world. And I think it’s unforgivable that the Labour Party has done so little to address these fundamental challenges. I believe that a very big step change is needed in our economic performance to ensure New Zealand can make the most of its considerable potential. Growing the economy of this country continues to be my driving ambition. I stand before you today ready to deliver on that ambition for New Zealand. You have my personal commitment that if I am elected Prime Minister in eight days’ time I will work tirelessly over the next three years to deliver the stronger economic future our country deserves.”[3]
Essentially the simple concept behind the 2025 Taskforce’s recommendations is that if core government spending is reduced back to the same proportion of the economy that it was in 2004 and 2005 (around 29 percent of GDP), then the top rates of tax – personal, company and trust – could all be dropped to 20 percent, with all of the lower tax rates including GST left exactly as they are now. That would effectively mean that everyone earning more than $14,000 a year would pay less income tax, and nobody would have to pay more.
Just imagine the electrifying boost to the economy that a top tax rate of 20 percent would deliver. It would not only provide a welcome reward for hard work, but it would also create the incentive for able-bodied beneficiaries who have chosen welfare as their lifestyle option, to get jobs. Crucially, Kiwi businesses would gain a huge competitive advantage that would help to keep New Zealand one step ahead of Australia – especially as Australia is considering dropping their company tax rate down to 25 percent. Lower company tax would also help to mitigate the cost burden that National has just imposed on businesses through its ill-advised emissions trading scheme.
The 2025 plan sounds just what New Zealand needs – proper constraints on government spending and a welcome increase in taxpayers’ freedom and opportunity. The harsh reality is that without reducing the expansion of the state, New Zealand will never close the income gap with Australia because increasing government spending is a key factor in the differences in the performance of our two countries. According to Ken Henry, the Australian Secretary of the Treasury, government expenditure in Australia has grown from 18.9 percent of gross domestic product (GDP) in 1972 to just over 25 percent today. It has remained at that level for almost 35 years.[4] In comparison, government expenditure in New Zealand grew from over 24 percent back in 1972, to 29 percent in 2004, with a massive rise to 36 percent today. In other words, New Zealand’s consistently higher government spending has contributed to our consistently lower economic growth, and if the blow-out in spending during Labour’s last term in office is left unchecked, it will lead to an even more rapid decline in our living standards.
So what is it that the Taskforce is recommending to save $7 billion and enable a 20 percent top tax rate? Well, a total of 35 recommendations were proposed which cover initiatives in most policy areas including the idea of introducing a cap on government spending like they have in Hong Kong, a Taxpayers’ Bill of Rights like they have in Colorado, and an independent Productivity Commission like they have in Australia. The Taskforce also proposed that a proper first principles review of the Resource Management Act be undertaken, and that property rights be included in the New Zealand Bill of Rights. In the industrial relations area they have suggested extending the 90-day probationary period for new employees to a maximum of 12 months for all businesses, the reinstatement of youth wage rates, and the pegging of the minimum wage to the same ratio to average wages that prevailed in 1999. They have recommended that foreign investment restrictions should be loosened, that local councils should be encouraged to sell their trading enterprises, and that businesses owned by the government that operate in a competitive market should be sold.
In addition, the Taskforce has proposed that welfare reform be prioritised, as much to prevent the development of an underclass, as to reduce government expenditure. They have highlighted the fact that there are insufficient constraints in the welfare system to prevent large numbers of working age people opting out of the workforce to become fully supported by the state. In fact it is a scandal that the welfare system has been allowed to remain dysfunctional with ineffective work requirements for the able-bodied and a lack of intensive case management for those on sickness and invalid benefits. The end result is an escalation in the cost of welfare, with individuals deprived of the opportunity to achieve their potential and disadvantaged groups locked into cycles of intergenerational dependency.
This week’s NZCPR Guest Commentator, Lindsay Mitchell, has long campaigned on the need for effective welfare reform in New Zealand. In her article, If social security had been contained, how much better off would New Zealanders be today? Lindsay outlines the disturbing growth in welfare dependency:
“During the post-war years benefit levels were reasonably stable despite population growth. For instance between 1940 and 1975 the population grew by 92 percent but receipt of Unemployment, Sickness and Invalid benefits grew by only 9 percent. Compare this to the next almost 35 year period – 1975 to 2009 – and the picture is vastly different. Reliance on the same three benefits grew by 903 percent or 9 times. The population grew by a mere 38 percent over the same period.
“But what if benefit dependence had stayed at 1975 levels? Using estimates based purely on total population growth the numbers would now look something like this: Unemployment benefit 3,964, Sickness benefit 10,727, Invalid’s benefit 12,897; add in the DPB created in 1973 23,606. That’s a total of 51,194.
“However, the actual total today is 309,717. The difference in terms of expenditure is about $5.17 billion. That represents an average of $2,400 per employed person.” To read Lindsay’s full article, click here >>>.
The 2025 Taskforce report has brought to a head the choices that National faces – it can either cut government spending so that the country can prosper or it can hold a gun to the heads of taxpayers and demand more taxes so that it can endorse the spending spree that the Labour government set in motion. Most people who voted National into power wanted change. They were sick of socialism and state control. They wanted to be liberated and they wanted a brighter future. National has a responsibility to deliver that. And if they think that the policy prescription outlined by the 2025 Taskforce is not the right one, then they need to find their own $7 billion worth of spending cuts so that taxes can be reduced down to 20 percent and New Zealand can have a brighter future.
http://www.nzcpr.com/weekly209.htm
December 7th, 2009 at 8:15 pm
DPF
Did you see that Dr
MuppetCullen wrote a letter to the editor about the tax review. Mega-brain Cullen did his usual style of tripe. He, like always, was big on pointing out how it was so bad but and so 90’s but for some reason DrMuppetCullen forgot to mention that under his policies NZ was in recession ahead of the sub prime crisis and the subsequent global crisis. I guess he may have forgotten that his policies sent the NZ economy into recession…December 7th, 2009 at 10:37 pm
It is always interesting in these economic reviews that the lack of capital investment is highlighted as a factor holding us back. If you want higher capital investment then you need higher wages to make increased capital investment more attractive.