Dim-Post on Tax
January 21st, 2010 at 10:38 am by David FarrarNo, it is not satire, but a couple of useful posts. First he rebuts a cliche:
Tax cuts for rich, paid for by the poor.’
That’s how Marty at The Standard (happy Lynn?) describes the working group recommendations. To me it looks more like tax cuts for the rich and middle class who pay income tax, paid for by the rich and middle class who use loopholes in the property and WFF tax laws to rort the current system. The working group recommends compensating low income earners for GST increases and I don’t think a lot of struggling families and beneficiaries are benefiting from, say, LACQ shelters or depreciation rebates.
Indeed. I think some (not all) on the left just hate the thought of the top income tax rate being reduced. Maybe Danyl’s other post quoting the TWG may convince them:
. . . out of an Inland Revenue sample of 100 of the highest wealth individuals in New Zealand, data indicate that only about half are paying the highest marginal tax rate on their income.
Tax Working Group Report, Page 27
The higher the marginal rate, the larger the incentive to avoid it. When Labour reduced the top tax rate from 66c to 33c in the 1980s, the amount of tax paid actually increased.
If National does reduce the top tax rate to 33c, that will only bring it back to what it was before Cullen increased it.
Related posts:
- The case for lowering the top tax rate
- Why it is important to align the personal and trust rates
- Remember this when Labour proposes tax hikes
- Tax
January 21st, 2010 at 10:45 am
” Indeed. I think some (not all) on the left just hate the thought of the top income tax rate being reduced. ”
Because they really have no interest in any kind of working tax system.
Their priority is always the destruction of capitalism.
Vote:January 21st, 2010 at 10:48 am
Given the latest financial crisis I think the capitalists are doing a much better jobs themselves at destroying capitalism.
Vote:January 21st, 2010 at 10:49 am
Yes, but they shouldn’t reduce the trust rate. There are good reasons to get the personal rate to at or below the trust rate, but no reason to reduce the trust rate. Ideally, it should be higher than the personal income tax rate so people pay a charge for sheltering their assets, hiding their finances, or protecting assets for later beneficiary.
Otherwise the many existing trusts will stay intact, providing ongoing distortions of the economy and the tax system. If the trust rate is higher than the personal tax rate, there will be an incentive to wind up unnecessary trusts and allocate their assets in a more efficient manner.
[DPF: Not a bad point]
Vote:January 21st, 2010 at 10:57 am
Quite right, but wouldn’t eliminating the loopholes and avoidance possibilities do an even better job?
I am unsure about the top tax rate. Australia is always quoted in everything, but when it comes to the tax rates.,
The TWG shows a graph that shows the tax being paid in comparison with Australia that we are effectively paying $2,000-$3,000 more on a similar income from $30,000 to about $180,000. From there onwards the Aussies are paying more. (page 24)
Doesn’t that graph indicate more to lower the taxes in the lower brackets and thus benefiting everyone (low income / high income) rather than lowering the top rates?
Also the TWG talks about aligning the tax rates for trusts and PIEs to the top tax rate. That can also mean raising the tax on trusts and PIEs or lowering the top tax rate.
In any case it is a good read and a good discussion point.
Vote:January 21st, 2010 at 10:57 am
“Given the latest financial crisis I think the capitalists are doing a much better jobs themselves at destroying capitalism.”
LOL. You really dont understand either what happened or the natural creative destruction of capitalism.
Vote:January 21st, 2010 at 11:11 am
why is it a lefty always calls someone following the rules the IRD allows for property depreciation and tax rebates rorting loopholes.
i don;t trust any changes that penalise propety over shares when Gareth morgan (who was on the panel) stands to benefit more from a push into investing in shares.
i’ve got a novel solution, the government could spend less, then they won;t need to take as much from us.
Vote:January 21st, 2010 at 11:14 am
Out of the top 100 wealthiest NZers how many of those are retired and living off their tax paid investments, how many live overseas or own overseas based companies (Doug Myers, Michael Fay, Allan Gibbs etc. who are not liable for NZ tax).
Vote:Anyone who had a long term rental property had a lousy couple of years with sky high interest rates so 2008 tax year is hard for comparative purposes alongside all the people who dumped their apartments and took a loss. Besides you dont get a tax loss back unless you can write it off against a taxable profit source elsewhere.
January 21st, 2010 at 11:28 am
Why does anybody bother to read the Standard… Uless you’re entertained by the comments put forward by their cheer-leaders and Bitch-slappers.
Vote:January 21st, 2010 at 11:33 am
The simple (and equitable) solution to not only fixing the tax situation but also dramatically slashing the cost of compliance and administration (ie: bureaucracy) is to introduce a tax-free earnings threshold of $10K.
This would give *every* kiwi who earns $10K or more an instant gain of nearly $2K per year which would help offset the effect of 2.5-5% increase in GST. This means that those who earn over 78K (or 39K respectively) would still effectively pay more while those on lower incomes would break-even or actually reap a dividend.
Australia and a number of other countries have this tax-free earning threshold and it significantly reduces the compliance and administration costs of the tax system — which is (so they say) the ultimate goal of the government, isn’t it?
The current system makes absolutely no sense at all: ie: take $1,950 of tax from the first $10K of someone’s earnings and then spend a small fortune in a system that ends up giving most or all of it back to the poor by way of welfare benefits.
I see absolutely no reasons why we shouldn’t have such a tax-free earnings threshold — except that it disempowers the government and its bureaucrats. Under the current system (tax and return), the government has “control” over low-income earners and forces them to come “cap in hand” to beg for that money back. Clearly the one thing that those who aspire to political power value above all else — is the ability to exercise that power. Hence, freeing a good number of low-income earners from the grasp of the tax/welfare system would be contrary to the ideology of all the major parties.
It’s a shame that the word “pragmatism” doesn’t exist in the political dictionary any more than the word “accountability” does
Vote:January 21st, 2010 at 11:33 am
- who apparently dissented on some of the recommendations.
Yes, it should spend less, but the tax take should also be arranged more fairly without favouring any type of investment over others.
Vote:January 21st, 2010 at 11:33 am
Sigh, the report says a “sample of 100 of the highest wealth individuals in New Zealand” without defining what a “highest wealth individual” is.
Vote:January 21st, 2010 at 11:56 am
The left? I thought the TWG said that:
The tax system lacks coherence, integrity and fairness: Differences in tax rates and the treatment
Vote:of entities provide opportunities to divert income and reduce tax liability
January 21st, 2010 at 12:06 pm
Remember when we introduced GST at 10% in exchange for a lower, 33% top tax rate in 1986?
Apparently, the government needed the GST revenue, could balance it against the lowered PAYE revenues and it was fairer.
Then they decided it didn’t earn them enough so they upped it to 12.5% in 1989.
Then they decided the top tax rate was too low and upped it to 39% in 2000.
Now here we are in 2010 and the government (well, a working party at this point) tells us to get the rate back to 33% GST needs to be 15%.
Do you not see anything significant here?
The 10% GST is being raised to 15% to get to the same tax rate we were told justified 10%.
It really means the government will need to spend more and more, and subsequently raise taxes.
We are engaged in the wrong debate. Whilst I agree the tax system does need a serious overhaul, the bigger issue is how to reign in government spending, because whatever we agree here today on taxation rates will be over-ridden in three years, then 6 years, then 10 years and so on.
Then in 2020 or wo30 we’ll be discussing a 20% GST in exchange for lowering the PAYE tax rate back to, err 33%.
Vote:January 21st, 2010 at 12:19 pm
Very true ZenTiger — but don’t forget we’re also being hit with higher petrol taxes (as a $-take) along with a huge raft of “levies” and fees that didn’t exist back in the ’80s.
We truly are overtaxed simply to support an aged, oversized bureaucracy sustained by the self-interest of indolent politicians.
All IMHO of course
Vote:January 21st, 2010 at 12:21 pm
zen – yea it sucks. clarke and cullen screwed us good.
hope key gets rid of the student loan scam and destroys WFF next term. followed by slashing and burning the public sector.
then maybe the economy can grow.
Vote:January 21st, 2010 at 12:23 pm
Government spending is a huge issue too, but needs to be tackled seperately to the tax changes.
Whatever could be wrong with going back to 2005 expenditure levels as Roger Douglas has recommended?
Vote:January 21st, 2010 at 12:27 pm
@aardvark at 11:33am: Good suggestion, but I don’t think it goes far enough. I humbly suggest a new New Zealand tax system.
Vote:January 21st, 2010 at 12:30 pm
WHY TAX CUTS WILL ALWAYS FAVOUR THE RICH.
By Daniel Hannan. MEP
“A distinguished constituent emails me the following story, to illustrate why virtually any party that seeks to reduce the tax burden on the general population will be accused of “looking after the rich”.
Vote:Suppose that every day, ten men went to the pub, and drank exactly £100 worth of ale among them. If they paid their bill the way we pay our taxes, the breakdown would be roughly as follows:
The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that’s what they decided to do.
The ten men drank contentedly together in the saloon bar until the landlord, meaning to be helpful, presented them with a dilemma.
“Gentlemen,” he said, “you’re my best customers. To show you how much I appreciate your trade, I’d like to give you a discount. From now on, I’ll knock £20 of the total bill for your drinks”. Drinks for the ten men would now cost just £80.
The group wanted to carry on splitting their bill in the way that we pay our taxes. So, obviously, the first four men, those least well off, would continue to enjoy free beer. What, though, of the other six? How could they divide the £20 discount in such a way that everyone got his fair share of the windfall?
They realised that £20 divided by six is £3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink.
So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, following the principle of the tax system they had been using. This is how the bill now looked.
The fifth man, like the first four, now paid nothing (100 per cent saving).
The sixth now paid £2 instead of £3 (33 per cent saving).
The seventh now paid £5 instead of £7 (28 per cent saving).
The eighth now paid £9 instead of £12 (25 per cent saving).
The ninth now paid £14 instead of £18 (22 per cent saving).
The tenth now paid £49 instead of £59 (16 per cent saving).
Each of the six was better off than before. And the first four continued to enjoy free booze. But, as they left the pub, the men began to compare their savings.
“I only got a pound out of the £20 saving,” declared the sixth man. He jabbed an accusing finger at the tenth man,”Why should he get £10?”
“Too right,” exclaimed the fifth man. “I only saved a pound too. It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get £10 back, when I got two measly quid? The system is rigged in favour of the toffs!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. It’s always the worst off who get neglected by the politicians!”
The nine men dragged the tenth into the carpark and gave him a thorough kicking.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beer without him. But when the bill came, they found that their money didn’t even cover half of it.
There is, of course, an argument for cutting tax in a way that disproportionately favours the poor: a rise in thresholds, for example, aimed at ending the disincentives that trap people in the squalor of dependency. Norman Tebbit, our newest Telegraph blogger, makes precisely that case here. (Do have a look, by the way, at the brilliant new contributors whom the blogs editor, Damian “The Dame” Thompson, has signed up: Andrew Gilligan, Douglas Murray and Toby Young as well as Norm.) The point is that any general tax cut – reducing income tax, lowering VAT, scrapping taxes on savings or inheritance – is bound to favour, in absolute if not relative terms, the people paying the most already.
Of course, if your objective is equality rather than prosperity, you can design a fiscal system around the expropriation of the tenth man. But, as in my constituent’s little parable, he is unlikely to hang around waiting for you to apply it. In fact, the chances are that his house in Belgravia is already on the market.”
January 21st, 2010 at 12:46 pm
@Pete George
First get agreement on a definition of the word “fairly”.
Already in the comments threads on this and other blogs we see time and time again matters of ideology getting in the way of logical debate. Bleatings about “the rich” and “the poor” and statements such as “Tax is mainly an issue of social equity” are empty and meaningless until those exponding such views come to realise that there is an equation which in its simplest form is :
money out = money in
There will of course never be a consensus on how to extract the cash needed to support Government’s many and varied activities until it can all be taken from someone else.
Vote:January 21st, 2010 at 12:48 pm
I would suggest that giving the richest the greatest dollar-tax break might sound great in theory and might even work in those countries where the rich invested in productive enterprise.
Unfortunately, here in NZ, the rich tend to invest their wealth in unproductive property ventures. Their investment dollars don’t generate the export-receipts that this country needs to increase its true wealth and the standard of living we all enjoy.
If we did have a culture of productive investment then I’d be all for allowing the rich to hang onto their money — but as it is, doing so only results in higher house-prices and rents — which does nothing but disadvantage the poor even more.
What’s more, if you leave the poor out of the tax-cut loop but raise their GST, you’re going to get increased levels of tax evasion and crime. That benefits nobody, not even the rich — who find their insurance premiums hiked and their new plasma TV nicked by burglars.
As I’ve said before — let’s not dick around in the foolish belief that re-carving the cake will change its size.
Let’s focus on fostering new export-oriented industry that raises our GDP. After all, if we doubled our GDP (not an unrealistic goal) we could halve the tax rates and we’d all be better off!
Vote:January 21st, 2010 at 1:23 pm
ZenTiger (237) Says:
January 21st, 2010 at 12:27 pm
@aardvark at 11:33am: Good suggestion, but I don’t think it goes far enough. I humbly suggest a new New Zealand tax system
Totally agree Zen but to ensure future government don,t revert to type by increasing tax take to pay for services we don’t need or want we need Binding Referenda so the taxpayer has the ability to block such legislation and remove MPs who support it. Lets try it in local governess as a pilot from 2011 as rates continue to increase at 6%, way above inflation. The experience gained will pave the way for National Implementation in 2014.
Vote:January 21st, 2010 at 1:28 pm
Binding Referenda are choking the shit out of California. Most voters tend to back paying less and getting more.
Vote:January 21st, 2010 at 1:31 pm
aardvark (305) Says:
January 21st, 2010 at 12:48 pm
You have yo question why Investment in Business/shares is shunned and the answer is the risk difference and the piss poor regulation and policing of those regulations we have – it seems Big Corporation can get away with knowingly breaking regulations and escaping with a wet bus ticket slap when compared with a draconian fine of say $200 for not having a current Rego costing perhaps $250 were the only loss to the revenue is the interest. If fines are to be a deterrent then they must detere and even say a $100,000 fine to a clearing bank making $100sM in profits is out of wack with the $200 to an employee earning $35,000.
Vote:January 21st, 2010 at 1:40 pm
Pete
Just because California isn’t making referenda work doesn’t mean NZ cannot, Switzerland has used it for a century and they seem to be a pretty happy, prosperous lot. California also got rid of an unpopular Governor using referenda – perhaps NZ would have removed Sue Bradford/Helen Clark/Michael Cullen and most of labour/Greens/Alliance and even a goodly number of national the last 9 years if they had that opportunity. Anyway California’s fiscal problem is centered around the requirement for a balanced budget which is the problem of the politicians being unable to agree on the required cost cutting/tax raising to achieve a balance.Politicians however dislike the idea of them not having the last word and being held to account for promising something and delivering something entirely different so forcing referenda is the only way the taxpayer will have of getting the kind of change that is necessary and acceptable to the taxpayer.
Vote:January 21st, 2010 at 2:00 pm
Referenda per-se are problematic — simply because you end up with a tiny subset of highly motivated people participating and the vast majority just ignoring the issues because “that’s why we have politicians… where’s my dinner?”
Besides which, we employ politicians to actually deal with the administration and direction the nation is taking. By and large, they manage this without making too many bad decisions.
What’s needed is recoverable proxy: http://aardvark.co.nz/rproxy.shtml
This allows the politicians to go about their jobs, generally unaffected by the few who feel they need to have a say in every issue. However, when a major issue of significant public importance is before parliament, it empowers every single voter to have their say in a way that brings much needed checks and balances to the current political system.
In short, it stops the government of the day riding rough-shod over the rights and desires of the majority of voters — which is what democracy is all about.
Of course the existing parties will *never* accept recoverable proxy because (as I said in a previous post to this thread), the most important thing to those who seek power is the freedom to exercise it without the restriction or accountability that recoverable proxy might impose.
Vote:January 21st, 2010 at 2:36 pm
A very interesting point, however one key problem. You can easily make income of a trust income of the beneficiary, all you need to do is distribute it within 6 months (give or take, not going to check the ITA just for this
) and it is deemed income of the beneficiary. The idea of this provision was to stop some of the rorting of the trust system, all it resulted in is trusts loaning money to beneficiaries with either interest demandable (but never demanded) or repayable on demand and then forgiven after the 6 month period.
Vote:January 21st, 2010 at 4:36 pm
As Jeff83 has explained you can always find a way around any system. The trick is to use the system to your maximum advantage as the law is clear that noone has to pay more than the legal requirement.
Pollies will never ever come up with a scheme that will satisfy everyone or even a good percent of the citizens. The best we can hope for is a scheme that pitches at the pain(tax) threshold of most.
The pollies need to declutter the present system as this is the way tax accountants and lawyers find and exploit loopholes.
the simpler the system the harde to rort
This GST. I recall in 1985 many wanted exemptions and different rates for goods and services.
Having worked in the UK with system with 5 different rates and no consistency ( you want to take that food away then its zero rated You want to eat on the premises then its 15% rated) I and other called for and got a simple one rate no exemption ( well almost) system
And its worked How mnay cases do you see of GST fraud these days Not many consdiering the billions paid.
Simple is best Low flat rate income tax Reasonable GST tax with tax rebates ( NOT WFF) to compensate low income earners.
Dont try and be clever the tax lawyers and accountants will find a way around it
Vote:January 21st, 2010 at 5:11 pm
“Don’t try and be clever the tax lawyers and accountants will find away around it”…
True, except that the IRD now seemed to be armed with laws that allow them to prosecute any mechanism, legal or not, that is implemented solely for the purpose of reducing a person or company’s tax liabilities.
Look at how much the banks have had to hand over — for doing things that were permitted (I believe they even got a non-binding opinion from the IRD at one stage), simply because it was deemed that those otherwise legal activities were undertaken solely for the purpose of avoiding (not evading) tax.
Remember that the collection of tax is the single most important function of government. The power and resources given to the IRD eclipses that given to police, the military and even the SIS. In fact (as you’ll read in my book), I was once told by a member of the SIS that they sometimes call in the IRD so that they can get unfettered access to records and documents that would otherwise require a lengthy and problematic process if they were to use their own powers. Apparently the IRD have far more power to simply swoop and seize, all in the name of the mighty dollar.
Sad really that our so-called modern government (therefore society) still places the mighty dollar ahead of all else
Vote:January 21st, 2010 at 5:20 pm
Posters here are taking a narrow view when looking at New Zealand’s taxation. New Zealand’s economy is sick, wages and growth is too low. The tools to fix this are multi-faceted. Tax is only one part of the solution. Reducing government size and spending are another.
One of the biggest problems with our tax system is that too many assests become diverted into loss making areas like residential property so that the “investors” (losers in many cases) can feel good that they can pay less tax and not contribute to the governments wild spending and munters rorting the wealfare system (several property “investors” have told me just this). Unfortunately this type of investing does little to improve economic growth, wage growth and employment creation. It also increases the cost of homes. People have to save longer to buy their first home and pay higher mortgages. Debt levels increase meaning more of our earnings ends up offshore. Your average wage earner then cannot afford to pay for all of their basics as their housing costs are too high. They have to buy food on credit. The net result is our current account deficit is high.
I would love to see a tax system that discourages residential property investment and encourages people to invest in income generating assets. Rather than our investments losing money, rendering tax rebates, they should be paying dividends/interest which should be subject to tax. Tax rates should be low enough and government spending capped so that people are happy to be paying their tax. Furthermore high taxes and flawed programmes like WFF discourage people working overtime.
Our tax system in overall inefficient and needs reworking. While there will never be a true reduction in total revenue initially, if the tax system was more efficient in encouraging growth, wages and employment, then we will all benefit, even those poor people that the Standard are trying to champion and keep poor. Personally, I cannot see increasing GST flying, but I like the concept of land taxes and other disincentives to property investing. Ultimately we should have a flat tax and WFF replaced with tax breaks rather than handouts. WFF clearly shows that for some, losing a handout means more to them than earning a little extra.
If tax rates were lower, then there would also be little reason to have interest free student loans. My student loan was $65,000 at its maximum. This was in the days when it accumulated interest while studying and after graduating. This alone encouraged me to not fuck around and complete my studies in the minimum time. After graduating, I hated the sight of it, worked a crap load of overtime and had it paid off in 2 years. If the top tax rate was 30% I could have paid it off faster. The current system is yet another inefficient con. The working population are spending a lifetime of paying off other people’s student loans. After 2 years, I honestly thought I paid my dues, then Michael Cullen and the Labour party found another way to fuck me in the arse.
Vote:January 21st, 2010 at 10:25 pm
Because, despite the good sense he comes up with, Roger Douglas is Roger Douglas & apparently should just feel grateful he is where he is right now!
Vote: